2021 (5) TMI 834 - AT - Service Tax

Appellant wins CENVAT credit on telecom equipment, Delhi High Court rulings apply

The tribunal allowed the appellant's appeal, confirming their eligibility for CENVAT credit on towers, tower material, and shelters. The Delhi High Court ... Eligibility to avail CENVAT credit on towers, tower material and pre-fabricated shelters - determination of entitlement at the time of receipt of goods - movability versus immovability - permanence test and effect of subsequent fixation to earth - functional utility / nexus test for inputs - goods received in CKD/SKD condition as inputs or capital goods - binding effect of the jurisdictional High Court's decision on the TribunalEligibility to avail CENVAT credit on towers, tower material and pre-fabricated shelters - functional utility / nexus test for inputs - goods received in CKD/SKD condition as inputs or capital goods - Eligibility of the assessee to claim CENVAT credit on towers, tower materials (including MS angles and channels) and pre-fabricated shelters used in provision of telecommunication and business support services. - HELD THAT: - The Tribunal applied the reasoning of the Delhi High Court in Vodafone Mobile Services and held that towers and pre-fabricated shelters, received in CKD/SKD condition and assembled for use, form an integral part of the system that supplies the telecom service. The court accepted the functional utility approach: if goods are required for providing the output service on a commercial scale and are used (actively or passively) in conjunction with other equipment (antenna, BTS), they qualify as inputs within the CENVAT framework. The Tribunal rejected the view that an intermediate or eventual fixation to earth converts such received goods into non-excisable immovable property for the purpose of denying credit, and accordingly held that duty-paid inputs used to make towers and shelters are eligible for CENVAT credit.CENVAT credit on the claimed towers, tower materials and pre-fabricated shelters is allowable as inputs; the denial by the Commissioner was erroneous.Determination of entitlement at the time of receipt of goods - movability versus immovability - permanence test and effect of subsequent fixation to earth - binding effect of the jurisdictional High Court's decision on the Tribunal - Whether entitlement to CENVAT credit is to be determined at the time of receipt of goods and whether subsequent erection/fixation on site that results in an immovable structure disentitles the assessee from credit. - HELD THAT: - Relying on the Delhi High Court's conclusions, the Tribunal held that entitlement to credit is to be determined at the time the goods are received. Goods received in CKD/SKD condition that are movable on receipt and used for providing the taxable service cannot be denied credit merely because they are later assembled and fastened for operational stability. The Tribunal further noted that the decision of the jurisdictional High Court on the legal proposition is binding on the Tribunal and must be followed. Consequently, emergence of an immovable structure at an intermediate stage does not, in the facts of this case, operate to deny CENVAT credit.Entitlement is assessed at receipt; later fixation does not deny credit, and the Commissioner's contrary conclusion was set aside.Final Conclusion: The Commissioner's order confirming recovery of CENVAT credit on towers, tower materials and pre-fabricated shelters is set aside; the appeal is allowed and CENVAT credit is held allowable in respect of the periods covered by the show cause notices. Issues Involved:1. Eligibility of the appellant to claim CENVAT credit on tower, tower material, and shelter.2. Whether the items in question are immovable property.3. Applicability of the Board Circular dated 26.02.2008.4. Entitlement of CENVAT credit on towers and shelters as capital goods or inputs.5. Nexus test application for MS angles and channels.6. Timing of determining CENVAT credit entitlement.7. Impact of intermediate emergence of immovable structure on CENVAT credit eligibility.Issue-wise Detailed Analysis:1. Eligibility of the appellant to claim CENVAT credit on tower, tower material, and shelter:The appellant, a provider of telecommunication services, availed CENVAT credit on inputs, input services, and capital goods under the CENVAT Rules. The Commissioner denied this credit on the grounds that the goods were immovable and not used for providing output services. The appellant argued that the items were movable goods received in CKD condition, making them eligible for CENVAT credit at the time of receipt.2. Whether the items in question are immovable property:The Delhi High Court in Vodafone Mobile Services Ltd. vs. Commissioner of Service Tax, Delhi held that 'a machine or apparatus annexed to the earth without its assimilation by fixing with nuts and bolts on a foundation to provide stability and wobble-free operation cannot be said to be one permanently attached to the earth and therefore, would not constitute an immovable property.' This finding was used to argue that the towers and shelters were not immovable property.3. Applicability of the Board Circular dated 26.02.2008:The Department relied on a Board Circular which stated that items used for erecting towers and making housing/storage units are not excisable goods as they are attached to the earth and thus not used for providing taxable service. The tribunal, however, found that this circular did not apply because the Delhi High Court had already established that these items were not immovable.4. Entitlement of CENVAT credit on towers and shelters as capital goods or inputs:The Delhi High Court determined that the term 'all goods' in Rule 2(k) of the CENVAT Rules covers all goods used for providing output services, except those specifically excluded. The court concluded that towers and pre-fabricated shelters are essential for providing telecommunication services and thus qualify as inputs. The tribunal agreed that these items are used in conjunction with the Antenna and BTS equipment, making them eligible for CENVAT credit.5. Nexus test application for MS angles and channels:The Delhi High Court found that MS angles and channels used for providing infra-support services/telecom services have a clear nexus with the output service. The tribunal agreed that these goods are integral to the towers used for providing telecom services, thus satisfying the nexus test and qualifying for CENVAT credit.6. Timing of determining CENVAT credit entitlement:The Delhi High Court held that CENVAT credit entitlement is determined at the time of receipt of goods. The fact that these goods are later fixed to the earth for use does not change their status as excisable commodities when received. The tribunal agreed that the Commissioner erred in denying credit based on the later immovable status of the towers.7. Impact of intermediate emergence of immovable structure on CENVAT credit eligibility:The Delhi High Court concluded that the emergence of an immovable structure at an intermediate stage does not affect the eligibility for CENVAT credit. The tribunal agreed that the towers and shelters, even if fixed to the earth temporarily, are still eligible for credit as they are essential for providing telecommunication services.Conclusion:The tribunal set aside the Commissioner’s order dated 13.02.2017, allowing the appellant's appeal and confirming their eligibility for CENVAT credit on the disputed items. The tribunal's decision was pronounced on 25.05.2021.