2024 (12) TMI 998 - HC - GST

Characterization of telecommunication towers as immovable property falling within the ambit of Section 17 (5) of the CGST Act - illegible for input tax credit - assertion of the writ petitioners is that telecommunication towers are moveable items of essential equipment used in telecommunications which can be dismantled at site and thus capable of being moved - HELD THAT - It is apparent that in Bharti Airtel, the Supreme Court 2024 (11) TMI 1042 - SUPREME COURT has conclusively held that telecommunication towers cannot be construed as being immovable property. It becomes apparent that the stand taken by the respondents, namely, of telecommunication towers being liable to be viewed as immovable property is rendered wholly untenable. As the Supreme Court held in Bharti Airtel, telecommunication towers would clearly not qualify the five fundamental precepts which define an immoveable property. It was found that they neither qualify the test of permanency nor can they be said to be attached to the earth . Mobile towers, it was held, could be dismantled and moved and that they were never erected with an intent of conferring permanency. Their placement on concrete bases was only to enable those towers to overcome the vagaries of nature. Therefore, there cannot possibly be a doubt with respect to telecommunication towers being moveable property. Turning then to the provisions of Section 17 (5) itself, it is pertinent to note that the said provision sets out various goods and services which would stand exorcised from Section 16 (1) and thus not liable to be taken into consideration for the purposes of availing input tax credit - The expression plant and machinery has been defined by the Explanation appearing in Section 17 (5) to mean apparatus, equipment and machinery fixed to earth by foundation or structural support. However, it specifically excludes telecommunication towers from the ambit of the expression plant and machinery . The specific exclusion of telecommunication towers from the scope of the phrase plant and machinery would not lead one to conclude that the statute contemplates or envisages telecommunication towers to be immovable property. Telecommunication towers would in any event have to qualify as immovable property as a pre-condition to fall within the ambit of clause (d) of Section 17 (5). Their exclusion from the expression plant and machinery would not result in it being concomitantly held that they constitute articles which are immoveable. There are no hesitation in coming to the conclusion that telecommunication towers would not fall within the ambit of Section 17 (5) (d) of the CGST Act. The denial of input tax credit, consequently, would not sustain. Appeal allowed.

Summary

Issues Involved:

1. Characterization of telecommunication towers as immovable property under the CGST Act.
2. Eligibility for input tax credit in relation to telecommunication towers.
3. Interpretation of Section 17(5) of the CGST Act concerning telecommunication towers.

Issue-wise Detailed Analysis:

1. Characterization of Telecommunication Towers as Immovable Property:

The primary issue in these writ petitions was whether telecommunication towers should be classified as immovable property under the Central Goods and Services Tax Act, 2017 (CGST Act). The respondents argued that telecommunication towers fall within the ambit of Section 17(5) of the CGST Act, which would render them ineligible for input tax credit. The petitioners contended that telecommunication towers are movable items of essential equipment used in telecommunications, capable of being dismantled and moved, and thus should not be considered immovable property. The Supreme Court in Bharti Airtel Ltd vs. Commissioner of Central Excise, Pune, and the Delhi High Court in Vodafone Mobile Services Limited vs. Commissioner of Service Tax, Delhi, had previously held that telecommunication towers are intrinsically movable items and do not qualify as immovable property. The court reaffirmed these decisions, emphasizing that telecommunication towers do not satisfy the test of permanency or qualify as "attached to the earth" as defined under Section 3 of the Transfer of Property Act.

2. Eligibility for Input Tax Credit:

The petitioners challenged the denial of input tax credit on inputs and input services used for setting up passive infrastructure, arguing that telecommunication towers should not be classified as immovable property. The court examined the provisions of Section 17(5) of the CGST Act, which lists goods and services ineligible for input tax credit, including those related to the construction of immovable property. The petitioners argued that since telecommunication towers are not immovable property, they should be eligible for input tax credit. The court agreed with the petitioners, stating that the specific exclusion of telecommunication towers from the definition of "plant and machinery" in the Explanation to Section 17(5) does not imply that they are immovable property. Consequently, the denial of input tax credit was deemed unsustainable.

3. Interpretation of Section 17(5) of the CGST Act:

The court analyzed the interpretation of Section 17(5) of the CGST Act, particularly the exclusion of telecommunication towers from the definition of "plant and machinery." The respondents argued that this exclusion indicated that telecommunication towers should be considered immovable property. However, the court held that the exclusion does not automatically classify telecommunication towers as immovable property. The court emphasized that telecommunication towers must independently qualify as immovable property to fall within the ambit of Section 17(5)(d). Since the towers are movable, they do not meet the criteria for immovable property under the CGST Act, and thus, the denial of input tax credit was unjustified.

Conclusion:

The court concluded that telecommunication towers are movable property and do not fall within the ambit of Section 17(5)(d) of the CGST Act. The denial of input tax credit was found to be unsustainable. The court quashed the impugned orders and show cause notices, allowing the writ petitions.