Background The issue as regards whether or not CENVAT credit of excise duty paid on inputs is available to the service providers of active infrastructure under telecommunication service and “passive infrastructure” under business auxiliary service or business support service has been a matter of extensive debate. Earlier, in Bharti Airtel Ltd. vs. CCE, Pune-III 2014 (35) STR 865 (Bom), the Hon. Bombay High Court ruled that towers or prefabricated buildings with antenna, Base Trans receiver Station (BTS) and parts thereof for providing cell phone services are not goods. They are immovable property non-marketable and non-excisable. They do not qualify as inputs and are not used directly for providing output services of telecommunication. Following judicial discipline, this ruling was affirmed by the Bombay High Court in Vodafone India Ltd. 2015 (40) STR 422 (Bom) as well. However, in case of persons providing passive telecom infrastructure to cellular telecom operators and liable for service tax under business auxiliary service, in GTL Infrastructure Ltd. vs. CST Mumbai 2015 (37) STR 577 (Tri.-Mum), the decision of Bharti Airtel (supra) was distinguished. The Tribunal noted that towers/ BTS cabins were undisputedly used for providing services of provision of passive infrastructure and therefore in view of Rule 2(k)(ii) of CENVAT Credit Rules, 2004 (CCR), credit cannot be denied. Soon thereafter, in Reliance Infrastructure Ltd. vs. CST Mumbai 2015 (38) STR 984 (Tri.-Mum) also CESTAT – Mumbai held that the assessee providing passive telecom infrastructure by way of telecom towers to various cellular telecom operators discharging service tax liability under business support services were entitled to CENVAT credit under Rule 2(a)(A)(i) of CCR of central excise duty paid on inputs such as brackets, mounting pole, cable, prefabricated buildings/shelter/panel used in erection of telecom towers, noting that these goods were procured under central excise invoices and there were no restrictions on coverage of inputs except for oil and petrol in Rule 2(c) (ii) (CCR). It was further observed that merely because the same were assembled together, it was unreasonable to suggest that CENVAT credit was not admissible. In this case also, inter alia, Bharti Airtel (supra) was distinguished and GTL Infrastructure Ltd. (supra) was relied upon.
Tower Vision India P. Ltd,. vs. CCE (Adj) Delhi 2016 (42) STR 249 (Tri.-LB).
In the above background, a Division Bench recorded a difference of opinion in a bunch of 13 appeals in Idea Mobile Communication Ltd. vs. Commissioner 2016 (41) STR J48 (Tri.Del) as to whether post 2006, when assessees paid service tax under business auxiliary service or business support service for providing passive infrastructure services, CENVAT credit on towers, shelters/prefabricated parts etc. should be allowed in the light of decisions in GTL Infrastructure Ltd. (supra) and Reliance Infrastructure Ltd. (supra) or they should not be entitled to CENVAT credit on shelters/parts as capital goods wherein the supplier paid excise duty on these items by classifying under chapter 85 of the Central Excise Tariff Act, 1985 in the light of decision of Bharti Airtel Ltd. (supra). This was decided to be referred to the Larger Bench of three members. Along with this, on substantially similar issues another set of 8 appeals were directed to be tagged with the said 13 appeals. Hence the Larger Bench, headed by Hon. President CESTAT was constituted. Prior to the formation of the Larger Bench, the division bench had agreed on the view that appellants before them were not eligible for credit of duty on towers and cabins if they are providing telecommunication service as output service following Bharti Airtel Ltd. (supra). However, since the appellants are providing output services of business auxiliary service or business support service to the telecommunication companies, the Member (Judicial) held them as eligible whereas Member (Technical) held it as ineligible in view of the Bombay High Court’s judgment in Bharti Airtel’s case (supra).
Reference Points
Two points provided below were referred to the Larger Bench:
Whether it was correct to hold that post 2006, wherever service providers paid service tax under business auxiliary service or business support service for providing passive infrastructure, they are entitled to take CENVAT credit on towers, prefabricated shelters, parts thereof etc. in view of GTL Infrastructure (supra) and Reliance Infrastructure Ltd. (supra) or the appellants-service providers are not entitled to take the said credit in the light of decision in Bharti Airtel Ltd. (supra).
Eligibility of the appellants-service providers to the credit on shelters and parts as capital goods.
Contentions in brief
Contentions made for the appellants are summarised as follows:
Towers/shelters and tower material was part of the Base Transmission System (BTS) classifiable under Tariff Heading 8517 and hence all components, spares and accessories would qualify as capital goods, whether or not such components etc. fall under Chapter 85.
The above credit cannot be denied on the ground of immovability. In terms of Rule 3 of the CCR, credit is admissible on all inputs and capital goods which are received in the premises of the service provider. Later, the fact of embedding them in the earth would not affect their eligibility.
Credit on input services also would not be denied on the ground of immovability.
Prefabricated buildings/shelters classified under Chapter 85 would qualify as capital goods. Since the duty paid documents indicated classification, it cannot be denied at the end of recipients.
As an alternate submission, shelters and towers qualified as ‘inputs’ themselves. There is no bar to indicate that goods which are not considered “capital goods” would also not quality as inputs.
Towers and shelters would qualify as accessories. Without tower, the active infrastructure namely antenna cannot be placed on that altitude to general uninterrupted frequency.
CENVAT chain was not broken. These are installed on foundations by contractors. These contractors issued invoices for payment of service tax. There is no loss of identity of goods during erection process.
On the other hand, the revenue’s contentions are summarised as follows:
The issue relating to eligibility of towers and shelters is settled categorically by the Hon. Bombay High Court in Bharti Airtel Ltd. (supra) and has not been deviated by any other High Court or overruled by Hon. Supreme Court.
The excise duty paid on M.S angles, channels and prefabricated buildings have no direct nexus whether with telecom service or with business support service. It is an immovable tower which is used for providing both the above services and immovable property being neither goods nor a service, no credit can be taken.
Analysis in brief
The Larger Bench analysed rivals contentions keeping following aspects as the focal point.
Towers and shelters claimed as accessories of other capital goods.
The question of immovability of tower and its relevance and the nature of ‘tower’ being goods.
Tower parts (MS channels, angles etc.) as inputs for availing credit.
Nexus and CENVAT credit flow
Applicability of ratio followed for telecom companies to infrastructure companies.
The scope of CENVAT credit scheme and credit on capital goods.
Appellant’s case was strenuously argued, relying on several Court rulings which interalia included:
• Commissioner vs. Solid & Correct Engineering Works 2010 (252) ELT 481 (SC)
• Commissioner vs. Sai Sahmita Storages P. Ltd. 2011 (23) STR 341 (AP)
• Commissioner vs. Hyundai Unitech Electrical Transmission Ltd. 2015 (323) ELT 220 220 (SC)
The Bench observed that a distinction was sought to be made by the Tribunal in GTL Infrastructure Ltd. (supra) that the decision by the Bombay High Court in Bharti Airtel was applicable to active telecom service providers and not to providers of passive infrastructure. On finding that since appellants allowed the operators right to install antenna and BTS equipment and rendered output service under business auxiliary service, they were entitled to credit. According to the Larger Bench, the ratio of the Bombay High Court was not appropriately appreciated by the Tribunal while deciding GTL Infrastructure as the High Court order in Bharti Airtel Ltd, (supra) was not available at such time. Since these items are immovable property, they cannot be considered inputs. The inputs like MS angles and prefabricated shelters which suffered duty were not used for providing output service. It was further noted that in Sai Samhita Storage P. Ltd. (supra) relied upon by the appellant, creation of immovable asset and implication of CENVAT credit flow in such a situation was not examined in detail in the order whereas in Bharti Airtel Ltd. (supra) the same matters covered are discussed elaborately by the Hon. Bombay High Court. The findings therein were further reiterated in Vodafone India Ltd.’s case. In such situation, and in absence of any material to distinguish the said ratio vis-à-vis the facts of the present case, it was found that Bharti Airtel Ltd. supra) and Vodafone India Ltd. (supra) should be followed.
Lastly, as regards eligibility of credit on shelters and parts as capital goods, it was found that a particular classification of duty paid items by itself does not make the items eligible for CENVAT credit. The eligibility is decided as per provisions of CCR. Since the Bombay High Court categorically held that towers and PFB are in the nature of immovable goods, the supplier by classifying the product under Chapter 85 does not make them eligible for credit either as capital goods or as inputs.
All the decisions relied upon were distinguished. It was also contended for the appellant that decisions of the A.P. High Court in BSNL’s case [2012 (25) STR 321] relied upon by the revenue along with the Bombay High Court’s decision in Bharti Airtel Ltd. (supra) and Vodafone India Limited (supra) were incorrectly appreciated and applied the ratio regarding the character of towers and shelters deducible from the judgment in Solid & Correct Engineering Works (supra). The appellant contended, “as in the case of Solid and Correct Engineering Works, there is no permanent affixation of towers and the prefabricated shelters to the earth permanently. These are fixed by nuts and bolts to the foundations not with the intention to permanently attach them to the earth or for the beneficial enjoyment thereof but only since securing these to a foundation is necessary to provide stability and wobble/vibration free operation and to ensure stability…..these continue to be movables and goods and do not normatively undergo transformation as immovable property is the core contention.” (emphasis supplied)
The extract of conclusion drawn by the Larger Bench in para-41 of the judgment are reproduced below:
“In our respectful view however the challenge to the ratio and conclusions of the High Court’s decisions in Bharti Airtel Limited and Vodafone India Limited on the ground that these are predicated on an incorrect and impermissible interpretation of the rationes in Solid & Concrete Engineering Works, must await an appellate consideration, when and if challenged, by the Hon’ble Supreme Court. It is outside the province and jurisdiction of this Tribunal to analyze and record a ruling on a superior Court’s analyses and elucidation of other binding precedents.
If the Hon’ble High Court was not persuaded to reconciler, while adjudicating the lis in Vodafone India Limited, its earlier decision in Bharti Airtel Limited on a premise that its earlier decision might have been incongruous with the ratio of the Apex Court’s decision in Solid & Correct Engineering Works, it is clearly beyond the province of this Tribunal to embark upon such an exercise, on any grounds, including the per incuriam principle.”
Thus, considering the law laid down in Bharti Airtel Limited (supra) and Vodafone India Limited (supra) to be binding law on the constituted Larger Bench, it was held that provision of towers and shelters as infrastructure used in the rendition of an output service is common to both passive and active infrastructure providers, application of the High Court’s rulings would not be different. The Larger Bench thus resolved the issue in favour of revenue and disallowed CENVAT credit.
(Note: Readers may note that the decision in Bharti Airtel’s case is challenged before the Supreme Court. Further, the Supreme Court has ordered that this be tagged with Civil Appeal arising out of SLP in CCE Vishakhapatnam vs. M/s. Sai Samhita Storage P. Ltd.)
Conclusion
An important question that arises is when provision of active or passive infrastructure for use is treated as a taxable service for the purpose of levy of service tax, the means or the medium though which the said service is provided or yet better, without which the service cannot be provided is neither considered ‘input’ nor capital goods in a larger chain of value addition and also considering high cost of infrastructure that has gone into for providing telecommunication services. While many professionals are skeptical about considering the law laid down by Bharti Airtel (supra) to be good law, the finality on the issue is awaited till the Apex Court hears the matter.
