2024 (11) TMI 1042 - SC - Central Excise

Mobile service providers can claim CENVAT credit on excise duties for mobile towers and prefabricated buildings as movable goods

M/s BHARTI AIRTEL LTD. Versus THE COMMISSIONER OF CENTRAL EXCISE, PUNE

The SC held that mobile service providers can claim CENVAT credit on excise duties paid on mobile towers and prefabricated buildings. Applying tests of ... CENVAT Credit - capital goods - mobile service providers (MSPs) can claim CENVAT Credit on excise duties paid on mobile towers and prefabricated buildings (PFBs) or not - attributes of “capital goods” - Interpretation of word 'goods' - movable or immovable - Principles to determine the nature of the property - tests of permanency, intendment, functionality and marketability - meaning of “accessory” - whether the credit so claimed can be used to pay service tax for the output services rendered by the MSPs? - HELD THAT:- Rule 3(1) of the CENVAT Rules enables a provider of taxable service to claim CENVAT credit on duties paid on any “capital goods” or “input” received in the premises of the service provider. Thus, if the mobile towers and prefabricated buildings, which are the items in issue here, qualify as “capital goods” or “inputs” received in the premises of the mobile service provider, the mobile service provider will be entitled to claim CENVAT credit which can be further used for paying service tax for the output services rendered by the mobile service provider. In the light of the provisions of the CENVAT Rules, if it is held that towers and/or parts thereof and prefabricated buildings (PFBs) are “capital goods” or “inputs” used for providing output service within the meaning of the aforesaid CENVAT Rules, then CENVAT credit can be claimed on these items. It appears that the definition of “goods” under the Sales of Goods Act, 1930 seems to be the basis of the term “goods” in other Statutes. Hence, we would primarily rely on the definition given in the Sale of Goods Act - the items in consideration viz., towers and prefabricated buildings are neither actionable claim nor money, nor do they come within the inclusive clause of the definition, viz., stocks, shares, growing crops, grass, and things attached to forming part of the land which are agreed to be severed before sale or under contract of sale. In order to determine whether any property is movable or immovable, this Court, in the light of the statutory provisions has applied certain principles. It has also been noted that such determination may be done not based on a single test but after applying several criteria on the facts of each case. In TRIVENI ENGINEERING & INDUS. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE [2000 (8) TMI 86 - SUPREME COURT], this Court applied the marketability test, in which it took the view that if the goods in question are capable of being taken into the market and sold, the same cannot be treated to be as immovable but movable property - This Court observed that “marketability” itself indicates movability of the property in issue. In the case of Sirpur Paper Mills Ltd. [1997 (12) TMI 109 - SUPREME COURT], this Court again applied the test of marketability. The issue which arose for consideration in the said case was whether paper machines assembled at site were liable for duties under the Excise Act. It was the plea of the Assessee that since the machine was embedded in concrete base, it became an immovable property though embedding was for providing a wobble-free operation of the machine. This Court rejected the plea and held that merely because the machine was attached to the earth for efficient working and wobble- free operation, it did not per se render the said property immovable since the said machine can be sold in the market. In the present case, while mobile tower cannot be shifted to another location without dismantling it, it is to be noted that mobile tower itself was bought and brought in a completely knocked-down (CKD) or semi-knocked-down (SKD) condition and it was erected and installed at the site after assembling the parts. If the said mobile tower is to be shifted to another location, it obviously has to be dismantled and restored to its SKD or CKD condition and thereafter re-erected, which however, would not entail any damage to it. There can no dispute that if the newly set up BTS/BSC is relocated to another site it may entail certain damages. However, what is important to be noted is that the damage is qua the BTS/BSC or cables connecting the various components, but not the tower itself or PFB with which we are concerned. If the tower or the PFB can be dismantled and relocated in another site without causing any damage to either the tower or PFB, the mobility or the marketability of these items is retained. Thus, as far as the tower and PFBs are concerned, these exhibit the character of a movable property. Thus, merely because certain articles are attached to the earth, it does not ipso facto render these immovable properties. If such attachment to earth is not intended to be permanent but for providing support to the goods concerned and make their functioning more effective, and if such items can still be dismantled without any damage or without bringing any change in the nature of the goods and can be moved to market and sold, such goods cannot be considered immovable. The PFB houses other BTS equipment and alternative electricity source in the form of diesel generators and other equipment to provide alternative and uninterrupted power supply to the antenna so that in the event of failure of main power supply, the generator can instantly provide backup electricity supply to the antenna and BTS. The PFBs house electric cables, other equipment related to antenna, BTS and generator. Thus, PFBs enhance the efficacy and functioning of mobile antenna as well as BTS and accordingly, PFBs can also be considered as accessories to the antenna and BTS which are “capital goods” falling under Chapter 85 of the Schedule to the Central Excise Tariff. Having held that the tower and pre-fabricated buildings (PFBs) are “goods” and not immovable property and since these goods are used for providing mobile telecommunication services, the inescapable conclusion is that they would also qualify as “inputs” under Rule 2(k) for the purpose of credit benefits under the CENVAT Rules - Appeal disposed off. Issues Involved:1. Whether mobile service providers (MSPs) can claim CENVAT Credit on excise duties paid on mobile towers and prefabricated buildings (PFBs) under the CENVAT Credit Rules, 2004.2. Whether mobile towers and PFBs qualify as 'capital goods' or 'inputs' under the CENVAT Rules.3. Whether these items are movable or immovable properties.4. The conflicting decisions of the Bombay High Court and the Delhi High Court on the above issues.Issue-wise Detailed Analysis:1. CENVAT Credit Eligibility for Mobile Towers and PFBs:The core issue is whether MSPs can claim CENVAT Credit on excise duties paid for mobile towers and PFBs. The Bombay High Court ruled against MSPs, stating that these items do not qualify as 'capital goods' or 'inputs' under the CENVAT Rules, thus denying CENVAT Credit. Conversely, the Delhi High Court allowed the credit, considering these items as eligible under the CENVAT Rules. The Supreme Court examined the provisions of the CENVAT Rules, particularly Rule 3(1), which allows credit on 'capital goods' or 'input' received in the service provider's premises. The Court concluded that if mobile towers and PFBs qualify as 'capital goods' or 'inputs,' MSPs are entitled to CENVAT credit.2. Qualification as 'Capital Goods' or 'Inputs':The Supreme Court analyzed whether mobile towers and PFBs qualify as 'capital goods' or 'inputs.' Under Rule 2(a)(A), 'capital goods' include goods falling under specified chapters of the Central Excise Tariff Act and used for providing output service. The Court noted that towers and PFBs do not fall under these specified chapters. However, the Court considered whether these items could be deemed 'capital goods' under Rule 2(a)(A)(iii) as accessories of 'capital goods' like antenna and Base Transceiver Station (BTS), which fall under Chapter 85. The Court held that towers and PFBs enhance the functionality of antennas and BTS, qualifying them as accessories and thus 'capital goods.' Additionally, the Court considered these items as 'inputs' under Rule 2(k), as they are used for providing output service, i.e., mobile telecommunication.3. Movable or Immovable Properties:The Supreme Court assessed whether mobile towers and PFBs are movable or immovable properties. The Court applied various tests, including the functionality, permanency, and marketability tests. It concluded that these items are movable properties. The towers, brought in a completely knocked-down or semi-knocked-down condition, can be dismantled and relocated without damage, indicating movability. The Court emphasized that attachment to the earth for stability does not render these items immovable if they can be dismantled and sold in the market.4. Conflicting Decisions of High Courts:The Bombay High Court held that mobile towers and PFBs are immovable properties and do not qualify as 'capital goods' or 'inputs,' thus denying CENVAT credit. In contrast, the Delhi High Court found these items movable and eligible for credit. The Supreme Court agreed with the Delhi High Court, ruling that towers and PFBs are movable and qualify as 'capital goods' and 'inputs,' entitling MSPs to CENVAT credit. The Court set aside the Bombay High Court's judgment and upheld the Delhi High Court's decision, allowing MSPs to claim CENVAT credit on these items.Conclusion:The Supreme Court resolved the conflicting views by determining that mobile towers and PFBs are movable properties and qualify as 'capital goods' and 'inputs' under the CENVAT Rules. Consequently, MSPs are entitled to claim CENVAT credit on excise duties paid for these items, which can be used to pay service tax on the output services provided by them. The Court dismissed the appeals against the Delhi High Court's judgment and allowed the appeals against the Bombay High Court's decision.