ITC Eligibility on Telecom Towers: Legal Insights from Bharti Airtel Judgment

[Sabyasachi Chakraborty]

1. Whether “Tower” is immovable property

The term “Immovable Property” has neither been defined in GST Law, nor in the erstwhile Act (namely Central Excise Act, CENVAT Credit Rule, etc.]. It is settled position in law that if anything has not been defined in the main Act same can be borrowed from the General Clauses Act or other Act pari materia to the main Act. It is pertinent to refer to the term “immovable property” as defined under both in General Clauses Act as well as the Transfer of Property Act. The same is as follows –

• Section 2(26) of General Clauses Act – “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;
• Section 3 of Transfer of Property Act – “immovable property” does not include standing timber, growing crops or grass:
• Section 3 of Transfer of Property Act - “attached to the earth” means— (a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached:

Given the above discussion, it is clear that whether the tower is an immovable property or not, the same has to be decided based on the provision of the General Clause Act and Transfer of Property Act.

2. Jurisprudence based on a recent judgment of the Hon’ble Apex Court in the case of M/S BHARTI AIRTEL LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE, PUNE - 2024 (11) TMI 1042 - SUPREME COURT

Based on the Apex Court Judgement, six principles namely permanency, Intendment of the parties, Functionality Test, and Marketability Test should be analyzed to decide whether any property is immovable or movable. Now given the said six principles, it is to be analyzed whether the tower alongside the Telecommunication Equipment installed and Plant & Machinery used as the Tower Site (Consumed) is immovable or movable property.

a. Nature of annexation - This test ascertains how firmly a property is attached to the earth. If a property is so attached, that it cannot be removed or relocated without causing damage to it, it is an indication that it is immovable.

The tower can be dismantled from the existing site and reassembled without causing any damage to its character. These attributes confirm that the tower is not attached so firmly which will damaged if same is removed or relocated.

b. Object of annexation – If the attachment is for the permanent beneficial enjoyment of the land, the property is to be classified as immovable. Conversely, if the attachment is merely to facilitate the use of the item itself, it is to be treated as movable, even if the attachment is to an immovable property.

Affixing the tower to the earth or building is not for the permanent beneficial enjoyment of the land or building, but to make it stable for effective functioning of the antenna for seamless rendering of mobile service by the service provider to the consumer/subscriber. These attributes confirm that the tower is not attached for permanent beneficial enjoyment of the land

c. Permanency – If the property can be dismantled and relocated without any damage, the attachment cannot be said to be permanent but temporary and it can be considered to be movable.

The tower can be dismantled from the existing site and reassembled without causing any damage to its character.  It can be moved to any other place and also sold in the market. These attributes negate the permanency test, which is characteristic of immovable property.

d. Intendment of the parties – The intention behind the attachment, whether express or implied, can be determinative of the nature of the property. If the parties intend that the property in issue is for permanent addition to the immovable property, it will be treated as immovable. If the attachment is not meant to be permanent, it indicates that it is movable.

Now, the tower when fixed to the earth or the building or the civil foundation by nuts and bolts does not get assimilated with the earth of the building permanently. Such affixing is only for the stability of the tower and to keep it wobble-free so that the antenna that is hoisted on it can receive and transmit the electromagnetic signals effectively and without any disturbance. Affixing the tower to the earth or building is not for permanent beneficial enjoyment of the land or building, but to make it stable for effective functioning of the antenna for seamless rendering of mobile services by the service provider to the consumers.

e. Functionality Test – If the article is fixed to the ground to enhance the operational efficacy of the article and to make it stable and wobble-free, it is an indication that such fixation is for the benefit of the article, such the property is movable.

The tower is fixed to the land or building to enhance the operational efficacy and proper functioning of the antenna which is fixed on the tower by making it stable and wobble-free.

f. Marketability Test– If the property, even if attached to the earth or an immovable property, can be removed and sold in the market, it can be said to be movable.

The Tower alongside the Telecommunication Equipment installed and the Plant & Machinery used as the Tower Site (Consumed) is relocated to another site, it may entail certain damages but that damage is on the cables connecting the various components, but not the tower alongside the Telecommunication Equipment installed and Plant & Machinery used as Tower Site (Consumed). In the event the tower alongside the Telecommunication Equipment installed and the Plant & Machinery used as the Tower Site (Consumed) can be dismantled and relocated to another site without causing any damage to the tower, the mobility or the marketability of these items is retained. Thus, as far as the tower alongside the Telecommunication Equipment installed and Plant & Machinery used as the Tower Site (Consumed) are concerned, the same have marketability.

In this connection, reliance can be placed on the case of SIRPUR PAPER MILLS LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, HYDERABAD - 1997 (12) TMI 109 - SUPREME COURT–

Para No 5 - Apart from this finding of the fact made by the Tribunal, the point advanced on behalf of the appellant that whatever is embedded in the earth must be treated as immovable property is not sound. The test is whether paper-making machines can be sold in the market. The tribunal has found that as a fact that it can be sold. Given that finding, we are unable to uphold the contention of the appellant that the machine must be treated as a part of the immovable property of the company. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property.

Reliance can be further placed on the case of Para No 44 of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD VERSUS SOLID & CORRECT ENGINEERING WORKS & ORS. - 2010 (4) TMI 15 - SUPREME COURT,

In the instant case, all that has been said by the assessee is that the machine is fixed by nuts and bolts to a foundation not because the intention was to permanently attach it to the earth but because a foundation was necessary to provide a wobble-free operation to the machine. An attachment of this kind without the necessary intent of making the same permanent cannot, in our opinion, constitute permanent fixing, embedding, or attachment in the sense that would make the machine a part and parcel of the earth permanently. In that view of the matter, we see no difficulty in holding that the plants in question were not immovable property to be immune from the levy of excise duty.

Applying the test of nature of annexation, the object of annexation, the intendment of the parties, the marketability test, and functionality test and the ratio of the above judgments, Hon’ble Apex Court in the case of M/S BHARTI AIRTEL LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE, PUNE - 2024 (11) TMI 1042 - SUPREME COURTheld that tower and pre-fabricated buildings (PFBs) are not immovable property but movable within the meaning of Section 3 of the Transfer of Property Act, read with Section 3(36) of the General Clauses Act.

3. Implication of judgment of the Supreme Court –

1. Implication under the Service Tax regime

In light of the judgment of the Supreme Court, the Chhattisgarh High Court in BHARAT SANCHAR NIGAM LIMITED VERSUS COMMISSIONER, CENTRAL EXCISE & CUSTOMS, CHHATTISGARH, THE PRINCIPAL COMMISSIONER, CGST AND CENTRAL EXCISE RAIPUR - 2025 (1) TMI 66 - CHHATTISGARH HIGH COURT, allowed the appeal filed by the assessee and set aside the judgment of the Tribunal, wherein it was held that the assessee was not eligible to avail credit of excise duty paid on towers and shelters procured by them for providing output telecom services.

2. Implication under the GST regime

Hon’ble Delhi High Court in the case of M/S. BHARTI AIRTEL LIMITED, INDUS TOWERS LIMITED, ELEVAR DIGITEL INFRASTRUCTURE PVT LTD (EARLIER KNOWN AS ATC TELECOM INFRASTRUCTURE PVT LTD) VERSUS COMMISSIONER, CGST APPEALS-1 DELHI, UNION OF INDIA & ORS. - 2024 (12) TMI 998 - DELHI HIGH COURT observed that the restriction envisaged under Section 17(5)(d) of the CGST Act, 2017 would be only applicable if the towers and shelters qualify as immovable property. Thereafter, the Court relied upon the judgment of the Supreme Court and noted that since the towers and shelters are movable property, they would not fall within the ambit of Section 17(5)(d) of the CGST Act, 2017 and thus, the denial of input tax credit to the assessees would not sustain.