2025 (2) TMI 375 - AT - Service Tax

Admissibility of Cenvat credit in respect of the Tower Shelter Electric Setup other electronic items and prefabricated shelters for provision of output/telecommunication services - Admissibility of Cenvat credit of input service used for erection of such tower - Issuance of SCN. Admissibility of Cenvat credit in respect of the Tower Shelter Electric Setup other electronic items and prefabricated shelters for provision of output/telecommunication services - HELD THAT - The dispute between both the decisions has been finally settled by the Hon ble Supreme Court in the case of Bharti Airtel 2024 (11) TMI 1042 - SUPREME COURT that credit is admissible and the decision of Hon ble Bombay High Court has been set aside. Hon ble Supreme Court held We therefore agree with the conclusion arrived at by the Delhi High Court that towers and shelters (PFBs) support the BTS/antenna for effective transmission of mobile signals and thus enhance their efficiency and since these articles are components/accessories of BTS/antenna which are admittedly capital goods falling under Chapter 85 within sub-clause (i) of Rule 2(a)(A) of CENVAT Rules these items consequently are covered by the definition of capital goods within the meaning of sub-clause (iii) read with sub-clause (i) of Rule 2(a)(A) of CENVAT Rules. - there are no reason for the denial of the said credit. Admissibility of Cenvat credit of input service used for erection of such tower - HELD THAT - As the Hon ble Supreme Court has considered these goods as capital goods/inputs in the provision of output service the credit in respect of erection of these goods could not have been denied. As the services have been used for provision of output services either directly or indirectly the CENVAT credit could not have been denied - these services are squarely covered by Rule 2 (l) of the CENVAT Credit Rules 2004 and hence the credit of service tax paid in respect of these services would be admissible to the appellant. Issuance of SCN - HELD THAT - There are no merits in the said appeal for the reason that the Show Cause Notice would not have been issued in respects of the amount already paid by the party prior to the issuance of Show Cause Notice in terms of Section 73(3) of the Finance Act 1994. There are no merits in the appeal filed by the Revenue. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal issues:

1. Whether the Cenvat credit is admissible for items such as 'Tower', 'Shelter', 'Electric Setup', other electronic items, and prefabricated shelters used by the Appellant for providing telecommunication services.

2. Whether the Cenvat credit is admissible for services received by the Appellant for the erection of these towers, considering the argument that these are used for the construction of immovable property.

3. Whether the appeal filed by the Revenue regarding the non-imposition of penalties under Section 78 of the Finance Act is valid, given that the Appellant reversed certain credits before the issuance of the Show Cause Notice.

ISSUE-WISE DETAILED ANALYSIS

1. Admissibility of Cenvat Credit for Towers and Related Equipment

- Relevant Legal Framework and Precedents: The primary legal framework involves the interpretation of Rule 2(a)(A) of the CENVAT Rules, which defines "capital goods" and Rule 2(k) related to "inputs". The precedents include conflicting decisions from the Bombay High Court and the Delhi High Court, which were ultimately resolved by the Supreme Court in the case of Bharti Airtel Ltd. v. CCE, Pune.

- Court's Interpretation and Reasoning: The Supreme Court's decision clarified that towers and prefabricated shelters can be considered as "capital goods" under sub-clause (iii) of Rule 2(a)(A) as they are accessories to antennae and BTS, which are "capital goods" under Chapter 85. The Tribunal followed this reasoning, noting that these items enhance the functionality of the antennae and BTS, thus qualifying for Cenvat credit.

- Key Evidence and Findings: The Tribunal relied on the Supreme Court's interpretation that towers and shelters are not immovable properties but are "goods" used as accessories to capital goods, thereby making them eligible for Cenvat credit.

- Application of Law to Facts: The Tribunal applied the Supreme Court's ruling to the facts of the case, concluding that the Appellant is entitled to Cenvat credit for the towers and related equipment as they are used for providing telecommunication services.

- Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that towers and shelters are immovable properties and thus not eligible for credit, aligning with the Supreme Court's decision that these are integral to the telecommunication service infrastructure.

- Conclusions: The Tribunal concluded that the Cenvat credit for towers and related equipment is admissible to the Appellant.

2. Admissibility of Cenvat Credit for Services Used in Erection of Towers

- Relevant Legal Framework and Precedents: The legal framework involves Rule 2(l) of the CENVAT Credit Rules, 2004, which defines "input services". The Supreme Court's interpretation in Bharti Airtel Ltd. also extends to services used for the erection of towers.

- Court's Interpretation and Reasoning: The Tribunal noted that since the towers and shelters are considered as capital goods/inputs, the services used for their erection are also integral to providing output services and thus qualify for Cenvat credit.

- Key Evidence and Findings: The Tribunal found that the services used for erecting the towers directly relate to the provision of telecommunication services, thus qualifying as input services.

- Application of Law to Facts: The Tribunal applied Rule 2(l) to conclude that the services used in the erection of towers are eligible for Cenvat credit.

- Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the services relate to immovable property construction, citing the Supreme Court's decision that these services are used for providing output services.

- Conclusions: The Tribunal concluded that the Cenvat credit for services used in the erection of towers is admissible.

3. Validity of Revenue's Appeal on Non-Imposition of Penalties

- Relevant Legal Framework: Section 73(3) of the Finance Act, 1994, which pertains to the issuance of Show Cause Notices.

- Court's Interpretation and Reasoning: The Tribunal held that the issuance of the Show Cause Notice was unwarranted as the Appellant had reversed the credit before its issuance, aligning with the provisions of Section 73(3).

- Key Evidence and Findings: The Tribunal noted that the Appellant had already reversed the credit, making the Revenue's appeal for penalties baseless.

- Application of Law to Facts: The Tribunal applied Section 73(3) to determine that the Revenue's appeal lacked merit.

- Treatment of Competing Arguments: The Tribunal dismissed the Revenue's appeal, emphasizing the compliance of the Appellant with the reversal of credit.

- Conclusions: The Tribunal concluded that the Revenue's appeal regarding penalties was without merit and dismissed it.

SIGNIFICANT HOLDINGS

- The Tribunal upheld the Supreme Court's interpretation that towers and shelters are accessories to capital goods and thus eligible for Cenvat credit.

- The Tribunal confirmed that services used for the erection of these towers qualify as input services, allowing for Cenvat credit.

- The Tribunal dismissed the Revenue's appeal for penalties, citing the Appellant's prior compliance with credit reversal requirements.

The Tribunal's decision aligns with the Supreme Court's rulings, affirming the Appellant's entitlement to Cenvat credit for both the goods and services in question, and dismissing the Revenue's appeal for penalties.