2018 (11) TMI 713 - HC - Service Tax

Cenvat Credit - towers, shelter and accessories used for providing telecom services - whether immovable property or not - towers, shelter to be treated as accessories either as capital goods or input goods or not - installation after receipt of such towers and shelters at their premises (i.e. tower sites) - Held that - the debate mainly centers round the definition of capital goods in clause (a) of Rule 2 of the Credit Rules. - all components, spares and accessories of such capital goods falling under chapter 85, would also be treated as Capital goods. The towers and shelters support the BTS in effective transmission of the mobile signals and therefore, enhance their efficiency. The towers and shelters plainly act as components/ parts and in alternative as accessory to the BTS and would are covered by the definition of capital goods . Inputs or not - Held that - There is actual use of the tower and shelters in conjunction with the Antenna and the BTS equipment in providing the output service, which also includes provision of the Business Support Service. The CESTAT has failed to appreciate that the towers and the parts thereon and the pre-fabricated shelters are inputs, in accordance with the provisions of Rule 2(k) of the Credit Rules. Credit on inputs such as MS Angles and channels - Held that - clearly goods in question have gone into the making of such towers which in turn are used for providing infra-support service/ telecom service. It is therefore, held that the CESTAT erred in applying the nexus test and therefore, credit has to be extended to the duty paid MS angles and channels. Immovable property or not - Held that - the definition of input does not contain any condition relating to emergence of immovable property to be ineligible for taking credit. The eligibility of credit must be determined at the time of receipt of the goods in terms of Rule 4(1) of the Credit Rules. Credit cannot be denied so as long as the goods are used for the provision of the output service. The towers which are received in CKD condition, are assembled/ erected at the site subsequently giving rise to a structure that remains immovable till its use because of safety, stability and commercial reasons of use. The entitlement of CENVAT credit is to be determined at the time of receipt of goods. Emergence of immovable property in the intermediate stage - Held that - several High Courts in different contexts have taken a view that credit of excise duty and service tax paid would be available irrespective of the fact that inputs and input services were used for creation of an immovable property at the intermediate stage, if it was ultimately used in relation to provision of output service or manufacturing of final products. The conclusion of CESTAT, denying the assessee CENVAT credit on the premise that the towers erected result in immovable property, is erroneous and plainly contrary to Solid and Correct Engineering 2010 (4) TMI 15 - SUPREME COURT - If the goods that are received qualify as inputs or capital goods, the fact that they are later fixed/fastened to the earth for use would not make them a non-excisable commodity when received. Credit allowed - Decided in favor of assessee.

Issues Involved:
1. Whether the towers, shelter, and accessories used by the Appellants for providing telecom services are immovable property.
2. Whether the Appellants are entitled to claim CENVAT credit on the towers and shelters as 'accessories' either as capital goods or input goods in terms of Rule 2(a) or 2(k) of the Credit Rules.
3. Whether the CESTAT erred in applying the nexus test with reference to MS Angles and Channels.
4. Whether the Appellants were justified in claiming CENVAT credit of excise duty paid by the manufacturer of towers and shelters after receipt of such towers and shelters at their premises.
5. Whether the emergence of immovable structure at an intermediate stage is a criterion for denial of CENVAT credit.

Detailed Analysis:

Issue 1: Immovable Property
The court examined whether towers and shelters are movable or immovable property. The definition of "immovable property" under Section 3(26) of the General Clauses Act, 1897 and Section 3 of the Transfer of Property Act, 1882 was considered. The court referred to the Supreme Court's decision in *Solid and Correct Engineering Works* which emphasized the "permanency test." The court concluded that the attachment of towers to the foundation with nuts and bolts for stability does not make them immovable property. The towers and shelters can be unbolted and reassembled without damage, thus they remain movable. The court held that the CESTAT erred in relying on the Bombay High Court's decision in *Bharti Airtel Ltd.*, which presumed these structures to be immovable.

Issue 2: CENVAT Credit on Towers and Shelters
The court analyzed whether towers and shelters qualify as "capital goods" under Rule 2(a) of the Credit Rules. It concluded that towers and shelters are accessories to the Base Transmission System (BTS) falling under Chapter 85 of the Central Excise Tariff. The court cited *India Cements Ltd.* and *Nokia India Private Ltd.*, which held that accessories supporting capital goods falling under specified chapters are eligible for CENVAT credit. Therefore, towers and shelters, which enhance the efficiency of BTS, qualify as capital goods. The court also held that these items qualify as "inputs" under Rule 2(k) as they are used for providing output services.

Issue 3: Nexus Test with MS Angles and Channels
The court held that MS Angles and Channels used in the fabrication of towers have a direct nexus to the output service. These inputs are used in the making of towers, which in turn are used for providing telecom services. The court concluded that the CESTAT erred in applying the nexus test and that credit should be extended to the duty paid on MS Angles and Channels.

Issue 4: Justification for Claiming CENVAT Credit
The court examined Rule 4(1) of the Credit Rules, which allows credit on inputs after receipt in the premises of the output service provider. The court held that the eligibility for credit must be determined at the time of receipt of goods. The subsequent treatment of goods (such as fastening or bolting) does not affect their eligibility for CENVAT credit. The court concluded that the CESTAT erred in denying credit based on the eventual immovable nature of the towers and shelters.

Issue 5: Emergence of Immovable Structure
The court held that even if an immovable structure emerges at an intermediate stage, it does not affect the eligibility for CENVAT credit. The entitlement to credit is determined at the time of receipt of goods. The court cited several judgments, including *Tata Iron and Steel Company* and *Sai Sahmita Storages (P) Limited*, which support the view that credit is available irrespective of the emergence of immovable property at an intermediate stage. The court concluded that the CESTAT erred in denying credit on this ground.

Conclusion
All the questions of law were answered in favor of the assessee and against the Revenue. The court allowed the assessee's appeals and dismissed the Revenue's appeals, holding that the towers and shelters qualify for CENVAT credit as capital goods and inputs, and the emergence of immovable property at an intermediate stage does not deny such credit.

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