2024 (12) TMI 998 - HC - GST

Telecommunication Towers Classified as Movable Property Under Section 17(5) CGST Act; Input Tax Credit Allowed

The HC held that telecommunication towers are movable property and do not qualify as immovable property under Section 17(5) of the CGST Act. Relying on ... Characterisation of telecommunication towers as immovable property - availability of input tax credit under Section 17(5)(d) of the CGST Act - interpretation of the Explanation excluding telecommunication towers from the expression 'plant and machinery' - application of tests of permanency, functionality and marketability in determining movability - precedential effect of Bharti Airtel Ltd. on classification of telecom towersCharacterisation of telecommunication towers as immovable property - application of tests of permanency, functionality and marketability in determining movability - precedential effect of Bharti Airtel Ltd. on classification of telecom towers - Telecommunication towers are movable property and not immovable property for the purposes of Section 17(5) of the CGST Act. - HELD THAT: - The Court applied the settled tests adopted by the Supreme Court in Bharti Airtel and earlier authorities - nature of annexation, object of annexation, intendment of the parties, functionality, permanency and marketability - and concluded that telecommunication towers are fabricated, delivered in CKD/SKD form, assembled on site, can be dismantled and relocated without change of character, and can be resold. Placement on a concrete foundation is for stability and operational efficacy, not for permanent beneficial enjoyment of the land. The Explanation to Section 17 (defining 'plant and machinery' and excluding telecom towers) does not imply that telecommunication towers are thereby rendered immovable; statutory exclusion from the definition of 'plant and machinery' cannot be read to mean that the excluded item is ipso facto immovable. The Court therefore followed and gave effect to the ratio in Bharti Airtel (which endorses the Delhi High Court's reasoning in Vodafone) and held that telecom towers do not satisfy the characteristics of immovable property. [Paras 16, 18, 19]Telecommunication towers are movable goods and not immovable property within the meaning of Section 17(5) of the CGST Act.Availability of input tax credit under Section 17(5)(d) of the CGST Act - interpretation of the Explanation excluding telecommunication towers from the expression 'plant and machinery' - Denial of input tax credit on account of treating telecommunication towers as construction of immovable property under Section 17(5)(d) is unsustainable; impugned order and show cause notices are quashed. - HELD THAT: - Because telecommunication towers are movable goods, they cannot be excluded from input tax credit on the ground that they were used for construction of immovable property under clause (d) of Section 17(5). The Court held that the specific exclusion of telecom towers from the statutory definition of 'plant and machinery' does not convert them into immovable property for the purpose of denying credit. Consequently, the impugned Order in Original and the Show Cause Notices predicated on the premise that towers are immovable are founded on an untenable premise and cannot be sustained. The Court allowed the writ petitions and quashed the impugned orders and SCNs accordingly. [Paras 17, 20, 21, 22]Denial of input tax credit founded on classification of towers as immovable property is quashed; the impugned order dated 24 March 2023 and its appellate affirmation, and the specified SCNs, are set aside.Final Conclusion: The writ petitions are allowed: telecommunication towers are movable goods and not immovable property for the purposes of Section 17(5) CGST Act; consequently the impugned Order in Original dated 24 March 2023 and its appellate affirmation, and the challenged Show Cause Notices dated 25 July 2024, are quashed. Issues Involved:1. Characterization of telecommunication towers as immovable property under the CGST Act.2. Eligibility for input tax credit in relation to telecommunication towers.3. Interpretation of Section 17(5) of the CGST Act concerning telecommunication towers.Issue-wise Detailed Analysis:1. Characterization of Telecommunication Towers as Immovable Property:The primary issue in these writ petitions was whether telecommunication towers should be classified as immovable property under the Central Goods and Services Tax Act, 2017 (CGST Act). The respondents argued that telecommunication towers fall within the ambit of Section 17(5) of the CGST Act, which would render them ineligible for input tax credit. The petitioners contended that telecommunication towers are movable items of essential equipment used in telecommunications, capable of being dismantled and moved, and thus should not be considered immovable property. The Supreme Court in Bharti Airtel Ltd vs. Commissioner of Central Excise, Pune, and the Delhi High Court in Vodafone Mobile Services Limited vs. Commissioner of Service Tax, Delhi, had previously held that telecommunication towers are intrinsically movable items and do not qualify as immovable property. The court reaffirmed these decisions, emphasizing that telecommunication towers do not satisfy the test of permanency or qualify as 'attached to the earth' as defined under Section 3 of the Transfer of Property Act.2. Eligibility for Input Tax Credit:The petitioners challenged the denial of input tax credit on inputs and input services used for setting up passive infrastructure, arguing that telecommunication towers should not be classified as immovable property. The court examined the provisions of Section 17(5) of the CGST Act, which lists goods and services ineligible for input tax credit, including those related to the construction of immovable property. The petitioners argued that since telecommunication towers are not immovable property, they should be eligible for input tax credit. The court agreed with the petitioners, stating that the specific exclusion of telecommunication towers from the definition of 'plant and machinery' in the Explanation to Section 17(5) does not imply that they are immovable property. Consequently, the denial of input tax credit was deemed unsustainable.3. Interpretation of Section 17(5) of the CGST Act:The court analyzed the interpretation of Section 17(5) of the CGST Act, particularly the exclusion of telecommunication towers from the definition of 'plant and machinery.' The respondents argued that this exclusion indicated that telecommunication towers should be considered immovable property. However, the court held that the exclusion does not automatically classify telecommunication towers as immovable property. The court emphasized that telecommunication towers must independently qualify as immovable property to fall within the ambit of Section 17(5)(d). Since the towers are movable, they do not meet the criteria for immovable property under the CGST Act, and thus, the denial of input tax credit was unjustified.Conclusion:The court concluded that telecommunication towers are movable property and do not fall within the ambit of Section 17(5)(d) of the CGST Act. The denial of input tax credit was found to be unsustainable. The court quashed the impugned orders and show cause notices, allowing the writ petitions.