2023 (2) TMI 895 - AT - Service Tax

Denial of CENVAT credit - credit availed and utilized on inputs and capital goods used for setting up of passive infrastructure for provision of Business Support Services BSS - whether towers are movable property or immovable property? - HELD THAT - The issue involved in this appeal stands decided in favour of the appellant by the Delhi High Court in Vodafone Mobile Services Limited vs. CST, Delhi 2018 (11) TMI 713 - DELHI HIGH COURT , which decision was affirmed by the Supreme Court in Commissioner of Service Tax Delhi vs. Vodafone Mobile Services Limited 2019 (7) TMI 1419 - SC ORDER . The permanency test was examined at length by the Supreme Court in Commissioner of Central Excise, Ahmedabad vs. Solid Correct Engineering Works 2010 (4) TMI 15 - SUPREME COURT . In this case the Supreme Court drew a distinction between machines which by their very nature are intended to be fixed permanently to the structures embedded in the earth and those machines which are fixed by nuts and bolts to a foundation not because the intention was to permanently attach it to the earth but because foundation was necessary to provide a wobble free operation to the machine. It would also be relevant to refer to the decision of the Supreme Court in SIRPUR PAPER MILLS LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, HYDERABAD 1997 (12) TMI 109 - SUPREME COURT wherein the Supreme Court observed that merely because a machine is attached to earth for more efficient working and operations it would not per se become immovable property. This issue was also examined at length by a Division Bench of the Tribunal in M/S. RELIANCE JIO INFOCOMM LTD. VERSUS ASSISTANT COMMISSIONER, CGST CENTRAL EXCISE, BELAPUR-IV DIVISION 2022 (4) TMI 1361 - CESTAT MUMBAI and it was held that towers and shelters would not be immovable property. Thus, in view of the factual position and the decisions referred, the towers and shelters would not be immovable property. CENVAT Credit on capital goods - HELD THAT - The Delhi High Court in Vodafone Mobile Services 2018 (11) TMI 713 - DELHI HIGH COURT had also examined this issue and held that the Tribunal clearly erred in concluding that the towers and parts thereof and the prefabricated shelters are not capital goods with the meaning of Rule 2(a) of the Credit Rules - Thus also, the appellant was also entitled to take CENVAT credit since the items in dispute are capital goods . Appeal allowed.

Summary

Issues Involved:
1. Denial of CENVAT credit availed and utilized on inputs and capital goods used for setting up passive infrastructure.
2. Determination of whether towers are movable or immovable property.
3. Eligibility of towers and shelters as "inputs" under Rule 2(k) of the 2004 Rules.
4. Classification of towers and shelters as "capital goods."

Detailed Analysis:

1. Denial of CENVAT Credit:
The appellant, engaged in setting up passive infrastructure for telecom companies, availed CENVAT credit on excise duty paid for capital goods and inputs. The Commissioner denied this credit on the grounds that the goods were used for the fabrication/erection of towers and shelters, which were deemed immovable and not used for providing output services as per the Circular dated 26.02.2008.

2. Movable vs. Immovable Property:
The fundamental issue was whether towers are movable or immovable property. The appellant argued that towers are movable as they can be dismantled and relocated, with their installation involving only temporary fastening for stability. The definition of "movable property" under Section 3(36) of the General Clauses Act, 1897, and "immovable property" under Section 3 of the Transfer of Property Act, 1882, was examined. The Supreme Court's "permanency test" in cases like Solid & Correct Engineering Works and Triveni Engineering highlighted that the intention and method of attachment determine if an item is immovable. The Delhi High Court in Vodafone Mobile Services and other precedents confirmed that towers and shelters, being movable and not permanently attached, do not qualify as immovable property.

3. Eligibility as "Inputs":
The appellant contended that towers and shelters qualify as "inputs" under Rule 2(k) of the 2004 Rules, which covers all goods used for providing output services unless specifically excluded. The Delhi High Court in Vodafone Mobile Services supported this, stating that towers and shelters are integral to providing telecommunication services and thus meet the "functional utility" test, making them eligible for CENVAT credit as inputs.

4. Classification as "Capital Goods":
Alternatively, the appellant argued that towers and shelters qualify as "capital goods" under Rule 2(a) of the 2004 Rules. The Delhi High Court in Vodafone Mobile Services concluded that towers and shelters, being essential components or accessories to BTS and antennae, enhance their efficiency and thus fall within the definition of "capital goods." This interpretation aligns with the Supreme Court's judgment in Solid and Correct Engineering.

Conclusion:
The Tribunal set aside the Commissioner's order, allowing the appeal. It was concluded that the towers and shelters are movable property, qualify as inputs, and alternatively, as capital goods, making the appellant entitled to CENVAT credit. The order dated 28.09.2016 was unsustainable and thus annulled.