CENVAT CREDIT ON STRUCTURAL/CELL TOWERS

In ‘BSNL, Karim Nagar District V. Deputy Commissioner of Central Excise,Warrangal Division’ (Appeal No. 65/2012, dated 28.9.2012) the appellant filed an appeal against the order of Dy. Commissioner before Commissioner of Central Excise (Appeals). In this case the appellant availed CENVAT credit with effect from September 2004. The Department observed that the appellants had availed credit of Rs.3,54,488/- on structural steel towers meant for supporting the Telecommunication/signaling equipment falling under Chapter Heading 73082011 of Central Excise Tariff Act, 1985, which is not defined as capital goods under Rule 2(a)(A) of CENVAT Credit Rules, 2004.

A show cause notice was issued to the appellant to disallow the above credit on the capital goods under Rule 14 of CENVAT Credit Rules, 2004 read with Section 73 of Finance Act, 1994 along with interest under Rule 14 read with Section 75 of the Finance Act, 1994 and penalty under Rule 15 of CENVAT Credit Rules and Section 78 of Finance Act, 1994. The demand was confirmed by Dy. Commissioner of Central Excise.  Aggrieved against this order, the appellant filed appeal before the Commissioner (Appeals). Before the Commissioner (Appeals) the appellants put forth the following submissions:

• It is settled law the towers had a definite function with radio equipment. These were composite machines and were fabricated with MS angles, channels, beams etc., and classifiable under Chapter No. 8525 of Central Excise Tariff Act, 1985;
• Chapter 85 was included in the definition of capital goods under Rule 2(a)(A) (i) and all the inputs, components, spares and accessories required for such capital goods were also eligible which is agreed by the Adjudicating Authority;
• The Adjudicating Authority held that structural items were not eligible inputs/capital goods since they were used for fabricating the supporting structures and excluded from the definition of inputs in terms of Explanation II of inputs and that structural items was immovable property and were not capital goods. The findings is based on ‘Vandana Global Limited’ – 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB);
• The Larger Bench decision in the above said case was not relating to the activities of the Finance Act, 1994 but deals with excisable goods under Central Excise Act, 1944;
• Service tax not on the movable goods alone, it was charged on the invisible as well as on the intangible and immovable services; for e.g., internet telecommunication sends lot of data, the transmission of data was not tangible nor could it be seen. Likewise renting of immovable property or construction of complexes relates to immovable property, yet they were taxable services and also credit was available. Therefore the ‘Vandana case’ is not applicable to the present case;
• CENVAT credit Rules, 2004 were not issued under Section 37 of the Central Excise Act but it was also issued under Section 94 of the Finance Act, 1994;
• The decision in ‘Vandana Case’ is also superseded by High Court, Madras in ‘India Cements Limited’ – 2011 (8) TMI 399 - MADRAS HIGH COURT in which the credit of immovable property was allowed;
• The Adjudicating Authority described that MS angles, Channels etc., of Chapter 72 were fabricated and such towers are falling under Chapter heading 73 of Central Excise Tariff Act. This is not true. They are under 8525 since they were radio transmission items and the same was covered under the definition of capital goods.  It was also true that the inputs needs not fall under the headings of any of the capital goods defined under Rule 2(a)(A) of the CENVAT Credit Rules, 2004;
• The Board Circular No. 276/110/96-TRU, dated 02.12.1996 clarified that the components need not be under the same head as that of the capital goods. Hence the utilization of the credit on the MS items was in conformity with definition and Board’s Circular, which has not taken care of by the Adjudicating Authority;
• These towers were capital goods without which mobile system could not function;
• Service tax was not dependant on the immovable nature of the goods, but on the service rendered and credit was allowed to all the services;
• The towers received are in completely knock down (CKD) condition, to be assembled at site with help of nuts and bolts, on a concrete base. 
• CENVAT credit for the material used for concrete base has not been availed;
• It was a case of interpretation of the statute and hence longer period could not be invoked and also that the penalty was not invited;
• The notice for the period beyond the normal period was hit by limitation of time since the subject issue was covered by an earlier show cause notice, dated 30.11.2010 covering the period from 4/2006 to 12/2008.   Having already invoked the provisions for larger period in the earlier show cause notice dated 30.11.2010, the department could not have issued the show cause notice for a period beyond the normal period in the show cause notice dated 25.5.2011. Therefore the demand for the period from 1/2009 to 3/2010 was hit by limitation;

The appellants prayed for quashing the order of Adjudicating Authority.

The Commissioner (Appeals) held that he found that there was enormous force in the contention of the appellant that they received the cell towers in completely knock down condition from the supplying manufacturer categorically indicated the description of the capital goods supplied as ‘40M GBFC Tower’ which indicates that the cell tower was of 40 mt. height. The invoices were accompanied by a ‘bill of material’ which includes individual components like Angles, Plates, Flats, MS rods, conductor, pipe etc., These tower was assembled at site with the help of nuts and bolts on concrete base and they qualify themselves as capital goods.  The Commissioner (Appeals), therefore, held that the appellants were eligible for CENVAT credit.  He also accepted that the cell tower forms a part of the equipment/capital goods for rendering output service. 

The Commissioner (Appeals) in regard to limitation, held that the show cause notice dated 25.2.2011 was hit by limitation of the time, in as much as the allegation of suppression of facts, mis-statement etc., were not sustainable, since the department were aware of the issue which was already covered in the previous show cause notice dated 30.11.2010. Therefore it was held that the demand is not sustainable both on merits and the limitation time and is reduced to NIL, the demand for interest did not survive. Similarly as the demand itself is not sustainable, there is no case for imposition of penalty.