2015 (4) TMI 395 - AT - Service Tax

Eligibility to avail Cenvat credit for providing Cellular services - towers and pre-fabricated buildings/shelters - Capital goods - whether the appellants are to be saddled with the demands of reversal of Cenvat credit by invoking extended period or otherwise and whether penalties are to be imposed on them or not - Held that - High Court in the case of Bharti Airtel Ltd. 2014 (9) TMI 38 - BOMBAY HIGH COURT has held that The subject items are neither capital goods under Rule 2(a) nor inputs under Rule 2(k) of the Credit Rules and hence CENVAT credit of the duty paid thereon was not admissible to the appellants. When the high courts have already held that towers would become immovable property, the argument which was led by the learned Counsel that the Hon'ble High Court of Bombay has not considered the definition of immovable property as it is envisaged in the Transfer of Property Act and General Clauses Act, is incorrect and will not carry the case of appellants any further. - appellants therein were providers of storage and warehousing services; immovable property service and business auxiliary service, for which they need to have infrastructure in its place. In the cases in hand, with which we are dealing with are the telecommunication companies providing cellular services, we find that basically all the appellants herein are providers of telecommunication/cellular services and the facility created by them in form of towers and pre-fabricated buildings are for their own use. Predominantly, the towers and pre-fabricated buildings/shelters were utilised by the appellants herein for rendering their own telecom/cellular services. In view of this ratio laid down in the case of Sai Sahmita Storages Ltd. 2011 (2) TMI 400 - ANDHRA PRADESH HIGH COURT , SG Navratna 2012 (7) TMI 316 - CESTAT, AHMEDABAD and GTL Infrastruture Ltd., (2014 (9) TMI 647 - CESTAT MUMBAI) may not apply, as the facts in those cases are totally differen than the facts in these bunch of appeals. Be that as it may, we find that as the issue involved in this case is covered by the direct judgement of the jurisdictional High Court, judicial discipline demands that ratio of jurisdictional High Court is to be followed by this Bench. Extended period of limitation - Held that - It is evident and not in dispute that not only returns were filed periodically but audit was also conducted by the department. Even in the audit through returns were available, issues raised herein were not raised in few cases. In one of the cases Tribunal cannot lose the sight of the vital fact that final audit report during the concerned period did not indicate wrong availment of Cenvat credit on towers and pre-fabricated buildings. The omission which is subsequently alleged therefore, cannot be said to be beyond the department's knowledge. The facts in all these cases clearly show that appellants conduct was bonafide and there was no design to commit any fraud or to evade any duty. - allegation of suppression of material facts with intent to evade tax cannot be sustained. The demands within the limitation period as confirmed are upheld along with interest. Levy of penalty - Held that - as the issue was of are interpretative nature i.e., as to eligibility of Cenvat credit or otherwise on the towers and the building and had to be settled in the hands of the Hon'ble High Court, the appellants could have entertained a bonafide belief. Hence, all the penalties imposed on all the appellants herein are set aside by invoking the provisions of Section 80 of the Finance Act, 1994. - Decided partly in favour of assessee.

Issues Involved:
1. Eligibility to avail Cenvat credit on towers and pre-fabricated buildings/shelters.
2. Invocation of extended period for demand of tax.
3. Imposition of penalties on the appellants.
4. Denial of Cenvat credit on service tax paid for group insurance of employees.

Issue-wise Detailed Analysis:

1. Eligibility to Avail Cenvat Credit on Towers and Pre-fabricated Buildings/Shelters:
The primary issue was whether the appellants could avail Cenvat credit on towers and pre-fabricated buildings/shelters used in providing telecommunication services. The appellants argued that these items should be considered as "inputs" or "capital goods" under the Cenvat Credit Rules, 2004, as they were essential for providing output services. They contended that the towers and shelters, although immovable, were used for providing taxable services and should thus be eligible for credit. However, the Tribunal, relying on the Bombay High Court's decision in Bharti Airtel Ltd., concluded that towers and shelters, being immovable properties, do not qualify as "capital goods" or "inputs" under the Cenvat Credit Rules. The Tribunal emphasized that the definition of capital goods and inputs does not include items under Chapters 73 and 94, which cover towers and shelters. Consequently, the Tribunal held that the appellants were not entitled to avail Cenvat credit on these items.

2. Invocation of Extended Period for Demand of Tax:
The Tribunal examined whether the extended period for demanding tax could be invoked in these cases. The appellants argued that they had regularly filed returns and had undergone audits, during which no objections were raised regarding the Cenvat credit on towers and shelters. They contended that there was no suppression of facts or intent to evade duty. The Tribunal agreed with the appellants, noting that the audits did not indicate any errors in availing Cenvat credit on these items. It held that the appellants had a bona fide belief in their eligibility for the credit and had disclosed all relevant information in their returns. Consequently, the Tribunal found that the extended period for demanding tax could not be invoked and set aside the demands based on the extended period.

3. Imposition of Penalties on the Appellants:
The Tribunal considered whether penalties should be imposed on the appellants for availing ineligible Cenvat credit. Given that the issue involved an interpretative nature regarding the eligibility of Cenvat credit on towers and shelters, the Tribunal concluded that the appellants could have entertained a bona fide belief in their eligibility. Therefore, the Tribunal invoked the provisions of Section 80 of the Finance Act, 1994, to set aside all penalties imposed on the appellants.

4. Denial of Cenvat Credit on Service Tax Paid for Group Insurance of Employees:
In the case of Tata Teleservices Ltd. (TTL), an additional issue was raised regarding the denial of Cenvat credit on the service tax paid for group insurance of employees. The Tribunal found that this part of the denial was not in accordance with the law, as it was well-settled that such insurance for employees was eligible for Cenvat credit. Consequently, the Tribunal allowed the appeal of TTL on this ground.

Conclusion:
The Tribunal upheld the confirmation of demand of ineligible Cenvat credit and interest within the limitation period for all appellants. However, it set aside the demands invoking the extended period and all penalties imposed on the appellants. The Tribunal also allowed the appeal of TTL regarding the denial of Cenvat credit on the service tax paid for group insurance of employees. The appeals were disposed of accordingly.

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