2022 (10) TMI 581 - AT - Service Tax

Tribunal overturns demand, allows CENVAT credit for movable towers. Interest and penalties annulled.

The Tribunal allowed the appellant's appeal, setting aside the Commissioner's order. It held that towers and shelters are movable, eligible for CENVAT ... CENVAT Credit - inputs, input services and capital goods used by the appellant for provision of telecommunication services - eligibility of the appellant to claim CENVAT credit on tower, tower material, shelter, input services for the period from October 2004 to March 2012 and April 2014 to March 2015 - denial of credit primarily on the ground that the subject goods, being attached to earth, are immovable in nature, and thus not used for providing output services - applicability of Board Circular dated 26.02.2008 - conflicting decisions - whom shall Tribunal follow in case of conflicting judgements?. Whether towers are movable property or immovable property? - Excisability of goods - HELD THAT:- In MALLUR SIDDESWARA SPINNING MILLS (P) LTD. VERSUS CCE., COIMBATORE 2004 (3) TMI 68 - SUPREME COURT], the Supreme Court held that mere bolting of machine to a frame from which it can be unbolted and then shifted would not render the machine to be an immoveable 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. Whether towers and shelters would also qualify as ‘inputs’ under rule 2(k) of the 2004 Rules or not - HELD THAT:- Reliance placed in the judgement of Vodafone Mobile Services [2018 (11) TMI 713 - DELHI HIGH COURT] where it was held that The towers in CKD condition are used for the purpose of supplying the service and therefore, would qualify as ‘inputs’. There is actual use of the tower and shelters in conjunction with the Antenna and the BTS equipment in providing the output service, which also includes provision of the Business Support Service. Whether the items in dispute are ‘capital goods’ and, therefore, credit was correctly taken as ‘capital goods’ also deserves to be accepted or not? - 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. This question is answered in favour of the assessee and against the Revenue - Thus, the appellant was also entitled to take CENVAT credit since the items in dispute are ‘capital goods’. Two conflicting views have been expressed by the Delhi High Court in Vodafone Mobile Services and the Bombay High Court in Bharti Airtel Ltd. A Larger Bench of the Tribunal in Kashmir Conductors [1997 (7) TMI 186 - CEGAT, COURT NO. II, NEW DELHI] has considered which decision should be relied upon when conflicting views have been expressed by High Courts and it was held when a Jurisdictional High Court has expressed any view in regard to the issue and conflicting views have been taken by High Courts, other than the Jurisdictional High Court, then the Tribunal will follow the jurisdictional High Court. What also needs to be noticed is that the judgment of the Bombay High Court rendered in Bharti Airtel [2014 (9) TMI 38 - BOMBAY HIGH COURT] was considered by the Delhi High Court in Vodafone Mobile Services and it was distinguished as is clear from paragraph 48 of the judgment that has been reproduced above. In this connection the Delhi High Court had also placed reliance upon the later decision of the Supreme Court in Solid and Correct Engineering Works - The decision of the Delhi High Court in Vodafone Mobile Services would have to be followed. The appellant would, therefore, be entitled to claim CENVAT credit on tower/tower material and pre-fabricated buildings/shelters. It would, therefore, not be necessary to examine other contentions raised by learned Counsel for the appellant. Appeal allowed. Issues Involved:1. Eligibility of CENVAT credit on tower, tower material, and shelter.2. Determination of whether towers are movable or immovable property.3. Applicability of the exclusion clause under rule 2(k) of the CENVAT Credit Rules, 2004.4. Legality of confirmation of demand beyond the show cause notices.5. Invocation of the extended period of limitation.6. Imposition of interest and penalties.Issue-wise Detailed Analysis:1. Eligibility of CENVAT Credit on Tower, Tower Material, and Shelter:The appellant, a telecommunication service provider, claimed CENVAT credit on inputs, input services, and capital goods used for providing telecommunication services. The Commissioner denied this credit on the grounds that the goods were immovable and not used for providing output services, relying on a Board Circular dated 26.02.2008. The appellant argued that the goods were movable and received in CKD condition, making them eligible for CENVAT credit at the time of receipt. The Tribunal found that the towers and shelters were not immovable property, thus eligible for CENVAT credit.2. Determination of Whether Towers are Movable or Immovable Property:The Tribunal examined the definition of 'movable' and 'immovable' property under various acts and applied the 'permanency test' as established by the Supreme Court in Solid & Correct Engineering Works and other cases. The Tribunal concluded that towers, which can be dismantled and reassembled, do not qualify as immovable property. The Delhi High Court in Vodafone Mobile Services had similarly held that the towers and shelters are movable, as they are not permanently attached to the earth.3. Applicability of the Exclusion Clause Under Rule 2(k) of the CENVAT Credit Rules, 2004:The Tribunal referred to the definition of 'input' under rule 2(k) and concluded that the towers and shelters qualify as inputs since they are used for providing output services. The Delhi High Court in Vodafone Mobile Services had also held that these items are integral to the provision of telecommunication services and thus qualify as inputs.4. Legality of Confirmation of Demand Beyond the Show Cause Notices:The appellant contended that the confirmation of demand based on the finding that the items do not qualify as inputs/capital goods was beyond the scope of the show cause notices. The Tribunal found merit in this contention, noting that the allegations in the show cause notices were different from the grounds on which the demand was confirmed.5. Invocation of the Extended Period of Limitation:The appellant argued that the extended period of limitation could not be invoked. The Tribunal did not find sufficient grounds for invoking the extended period of limitation, considering the facts and circumstances of the case.6. Imposition of Interest and Penalties:The appellant contended that no interest was payable and no penalties were imposable. The Tribunal, agreeing with the appellant, set aside the imposition of interest and penalties.Conclusion:The Tribunal set aside the order dated February 22, 2017, passed by the Commissioner, allowing the appellant's appeal. The Tribunal followed the Delhi High Court's decision in Vodafone Mobile Services, which held that towers and shelters are not immovable property and qualify as inputs and capital goods under the CENVAT Credit Rules, 2004. The Tribunal also noted that the confirmation of demand was beyond the scope of the show cause notices and that the extended period of limitation was not applicable. Consequently, the imposition of interest and penalties was also set aside.