ITC on Telecommunication Towers: Bharti Airtel (SC) implication in GST Regime

[Somesh Jain]

The Hon’ble Supreme Court has recently pronounced its decision on the availability of Cenvat Credit on mobile towers, its parts and prefabricated buildings in M/S BHARTI AIRTEL LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE, PUNE - 2024 (11) TMI 1042 - SUPREME COURT.

The judgement affirmed the view taken by the Hon’ble Delhi High Court in VODAFONE MOBILE SERVICES LIMITED, INDUS TOWERS LIMITED, TOWER VISION INDIA PRIVATE LIMITED, BHARTI INFRATEL LIMITED, VERSUS COMMISSIONER OF SERVICE TAX, DELHI - 2018 (11) TMI 713 - DELHI HIGH COURT and overruled the decision of the Hon’ble Bombay High Court in M/S. BHARTI AIRTEL LTD. (EARLIER KNOWN AS BHARTI TELE-VENTURES LTD.) VERSUS THE COMMISSIONER OF CENTRAL EXCISE - 2014 (9) TMI 38 - BOMBAY HIGH COURT. The Supreme Court held as under:

1. Mobile towers and Prefabricated Buildings (PFB) do not become immovable property by their mere attachment to the earth as it is not intended to be permanent. The attachment is only for providing support and effective functioning to the antenna. They can be easily dismantled and moved to any other place without any substantial damage. Thus, they are “goods”.
2. Mobile towers and PFB are accessory to the antenna as they are necessary for providing height and stability to the antenna for ensuring uninterrupted and seamless service to subscribers. Thus, they can be considered as accessory to antenna and BTS which are “capital goods” falling under Chapter 85 of the Schedule to the Central Excise Tariff. Thus, they are also “capital goods”.
3. Mobile towers and PFB are “used for” providing output service. Their usage in providing output service is not remote but proximate. Thus, they are also “inputs”.

The Hon’ble Supreme Court thus allowed the appeal of the assessee on all counts.

Implication in GST regime

Under GST regime, Section 16 of the CGST Act provides that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business.

Section 17 provides for restriction on availment of credit. Possibly, the only restriction to avail credit on Mobile Towers and PFB can be under sub-clause (c) and (d) of sub-section (5) of Section 17, the relevant extract of which is as under:

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely :—

…

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation. — For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;”

Thus, the restriction applies only if there is a construction of immovable property (other than plant and machinery). The Hon’ble Supreme Court authoritatively held that Mobile Towers and PFB are not immovable property as they are not intended to be permanently annexed to the earth and can be easily dismantled and moved without any substantial damage. Thus, the restrictions under the above clauses will not apply and full input tax credit will be available.

However, on perusal of the definition of “plant and machinery” which specifically excludes buildings and telecommunication towers, a doubt may arise whether buildings and telecommunication towers are impliedly considered as immovable property for the purpose of GST law. Further, if they are not so considered, whether the exclusion of telecommunication towers from the definition of “plant and machinery” will become redundant. The relevant extract of explanation below Section 17(6) is as under:

“Explanation. — For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes —

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.”

At the outset, there is no definition of immovable property in the CGST Act. Therefore, it will derive its meaning from the General Clauses Act, 1897 and the Transfer of Property Act, 1882, as interpreted by the Hon’ble Supreme Court in Bharti Airtel (supra). Further, there is no deeming fiction to include telecommunication towers within the ambit of immovable property even if they otherwise do not become immovable property. Mere exclusion from the definition of “plant and machinery” does not mean that telecommunication towers are impliedly immovable property. The definition of “plant and machinery” will only become relevant for Section 17(5)(c) and (d), if what is being constructed is an immovable property, and that to for allowing credit on plant and machinery even if they are immovable property. If the goods under question, do not become immovable property, the definition of "plant and machinery" need not be referred to. Further, “plant and machinery” is also used in Section 16(3), 18(6) and 29(5) of the CGST Act without any reference to immovable property. Therefore, the exclusion of telecommunication towers from the definition of plant and machinery will not become redundant.

"Further, the definition of "plant and machinery" will not apply to clause (d) of Section 17(5) as the words used there are "plant or machinery" (as held in CHIEF COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX & ORS. VERSUS M/S SAFARI RETREATS PRIVATE LTD. & ORS. - 2024 (10) TMI 286 - SUPREME COURT). "

Hence, the telecom companies and service providers will be eligible to avail input tax credit under the GST regime on goods and services received for installation of mobile towers and PFB, not being an immovable property.