Tribunal rules in favor of taxpayer on service tax and CENVAT credit issues

The Tribunal set aside the demand for service tax on the compensation amount received for development rights and the denial of CENVAT credit. The issue of service tax on POP charges was remitted to the Commissioner for a fresh decision. The appeal was allowed to the extent indicated.

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Issues Involved:
1. Whether the appellant provided any service to the franchisee in relation to a franchise when it granted 'land development rights' to the Project Development Company/Joint Venture Company.
2. Whether the appellant was entitled to avail CENVAT credit on the purchase of towers during the period 2004-05, 2005-06, and 2006-07.
3. Whether the additional demand for liability of service tax on "POP" service is justified.

Issue-wise Detailed Analysis:

1. Compensation Received for the 'Right to Develop' the Land:
The Tribunal examined whether the transaction between the appellant and the Project Development Company/Joint Venture Company constituted a franchise service under section 65(105)(zze) of the Finance Act. The Commissioner had concluded that the appellant transferred and assigned its rights and obligations to the Joint Development Partner (JDP) for designing, planning, financing, marketing, development of buildings/developed units, and other related activities, thus considering it a franchise agreement. However, the Tribunal found that the essential requirement of a "representational right" was not established. The Delhi High Court in Delhi International Airport P. Ltd. vs. Union of India clarified that a franchise agreement requires the franchisee to represent the franchisor, effectively losing its individual identity. The Tribunal observed that the Project Development Agreement did not confer any representational right to the Joint Venture Company, and the developer did not represent itself as MTNL. Therefore, the confirmation of the demand for service tax on the compensation amount received for development rights was not sustainable.

2. CENVAT Credit:
The Tribunal addressed the denial of CENVAT credit amounting to Rs. 4,99,32,736/- claimed on the purchase of towers falling under Chapter 73. The appellant argued that the credit also included goods under Chapter 84 and 85, which were not considered by the Commissioner. The Tribunal noted that the appellant provided complete details and duty payment documents, which were not adequately examined. The Delhi High Court in Vodafone Mobile Services Limited vs. Commissioner of Service Tax, Delhi held that towers used in telecom services qualify as capital goods and inputs. The Tribunal concluded that the appellant was entitled to CENVAT credit for goods under Chapter 84 and 85 and even for towers under Chapter 73, following the functional utility test. Thus, the denial of CENVAT credit was set aside.

3. Service Tax on POP Charges:
The show cause notice alleged a service tax liability of Rs. 12,56,342/- on the amount of Rs. 1,01,64,597/- charged by the appellant for POP services to M/s Bharti Airtel. The appellant contended that the service tax liability should be calculated on a pro-rata basis from June 1, 2007, when the service became taxable. The Tribunal noted that the appellant did not provide detailed documentation to the Commissioner. Therefore, the Tribunal remitted the issue back to the Commissioner for a fresh decision, directing the appellant to submit relevant documents within six weeks.

Conclusion:
The Tribunal set aside the impugned order dated August 29, 2014, confirming the demand of service tax on the compensation amount received for development rights and the denial of CENVAT credit. The issue of service tax on POP charges was remitted to the Commissioner for a fresh decision. The appeal was allowed to the extent indicated.

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