2025 (7) TMI 147 - AT - Service Tax

Appeals succeed as transmission towers and prefabricated shelters qualify as capital goods under Rule 2(a)(A) despite land affixation

The Tribunal allowed appeals challenging denial of CENVAT credit on transmission towers and prefabricated shelters used for BTS installation. Following SC ... CENVAT Credit of Central Excise duty paid on the towers and shelters, which were procured in completely knockdown (CKD) condition - capital goods - HELD THAT:- The issue whether, the goods in question i.e., towers and shelters should be considered as ‘capital goods’, as per the definition provided in the CENVAT statue, it is found that the same is no more res integra, in view of the judgment of Hon’ble Supreme Court, delivered in the case of Bharti Airtel Ltd. Vs Commissioner of Central Excise, Pune [2024 (11) TMI 1042 - SUPREME COURT] that 'We, therefore, agree with the conclusion arrived at by the Delhi High Court that towers and shelters (PFBs) support the BTS/antenna for effective transmission of mobile signals and thus enhance their efficiency and since these articles are components/accessories of BTS/antenna which are admittedly 'capital goods' falling under Chapter 85 within sub-clause (i) of Rule 2(a) (A) of CENVAT Rules, these items consequently are covered by the definition of 'capital goods' within the meaning of sub-clause (iii) read with sub-clause (i) of Rule 2(a)(A) of CENVAT Rules. Further, since these are used for providing output service, i.e., mobile telecommunication service, and since these are 'capital goods' received in the premises of the provider of output service as contemplated under Rule 3(1)(i), the Assessees would be entitled to CENVAT credit on the excise duties paid on these goods.' The adjudged demands confirmed by the original authority cannot be sustained. Therefore, the impugned orders passed by the learned adjudicating authority are set aside - Appeal allowed in favour of the appellants. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:(a) Whether the goods in question, specifically transmission towers and prefabricated buildings/shelters used in the erection/installation of Base Transceiver Station (BTS) towers, qualify as 'capital goods' under the definition provided in Rule 2(a)(A) of the CENVAT Credit Rules, 2004.(b) Whether the appellants were entitled to avail CENVAT credit on the Central Excise duty paid on such goods, which were procured in Completely Knocked Down (CKD) condition and assembled at the site.(c) The validity of the demand for recovery of CENVAT credit confirmed by the original adjudicating authority on the ground that the disputed goods do not fall within the ambit of 'capital goods' as per the statutory definition.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Classification of Transmission Towers and Shelters as 'Capital Goods' and Entitlement to CENVAT CreditRelevant legal framework and precedents: The primary legal framework considered was the CENVAT Credit Rules, 2004, specifically Rule 2(a)(A), which defines 'capital goods'. The appellants claimed credit under this provision for the excise duty paid on towers and shelters used in the installation of BTS.The Tribunal relied heavily on the authoritative judgment of the Hon'ble Supreme Court in the case concerning similar facts, where the Court examined the nature and characteristics of transmission towers and prefabricated buildings/shelters in the context of the CENVAT Credit Rules.Court's interpretation and reasoning: The Supreme Court's analysis, as extracted in the judgment, emphasized that transmission towers, though affixed to the earth or buildings for stability, do not lose their character as movable goods. The Court noted:'The tower is brought to the site in CKD or SKD form and assembled at the site. If it is to be dismantled, it only involves unbolting of the nuts and bolts...there is no damage to the tower per se.'Further, the Court rejected the 'permanency test' as a determinant of immovable property status, stating that affixing the tower is solely to maintain stability for the antenna's effective functioning, not for permanent beneficial enjoyment of the land or building. Similar reasoning was applied to prefabricated buildings (PFBs).The Court agreed with the Delhi High Court's conclusion that towers and shelters support the BTS/antenna for effective transmission of mobile signals and enhance their efficiency, thereby qualifying as components/accessories of BTS/antenna, which are 'capital goods' under Chapter 85 of the CENVAT Rules.Key evidence and findings: The appellants' use of towers and shelters as integral parts of the BTS infrastructure, their procurement in CKD condition, and their assembly/dismantling characteristics were key factual elements supporting their claim.Application of law to facts: Applying the Supreme Court's authoritative interpretation, the Tribunal found that the towers and shelters in question squarely fall within the definition of 'capital goods' under the CENVAT Credit Rules. Consequently, the appellants were entitled to avail CENVAT credit on the excise duty paid on these goods.Treatment of competing arguments: The Department's contention that these goods should not be considered 'capital goods' was rejected based on the Supreme Court's ruling. The Department's reliance on the permanency test and the immovable nature of the goods was negated by the Court's detailed reasoning clarifying the movable nature and functional purpose of the towers and shelters.Conclusions: The Tribunal held that the disputed goods are 'capital goods' within the meaning of Rule 2(a)(A) of the CENVAT Credit Rules, 2004, and the appellants' claim for CENVAT credit was valid.Issue (c): Validity of the Demand Confirmed by the Original AuthorityRelevant legal framework and precedents: The original authority had confirmed the demand for recovery of CENVAT credit on the ground that the towers and shelters did not qualify as 'capital goods'. This demand was challenged before the Tribunal.Court's interpretation and reasoning: Given the binding precedent of the Supreme Court and the detailed reasoning therein, the Tribunal found no merit in the original authority's conclusions. The Tribunal observed that the adjudged demands could not be sustained in light of the settled law.Key evidence and findings: The Tribunal relied on the Supreme Court's judgment as the definitive authority on the issue, which directly contradicted the findings of the original adjudicating authority.Application of law to facts: The Tribunal applied the Supreme Court's interpretation to the facts of the present case and set aside the impugned orders confirming the demand.Treatment of competing arguments: The Tribunal did not find any persuasive argument from the Department to override the Supreme Court's ruling. The Department's contention was effectively overruled.Conclusions: The Tribunal allowed the appeals, set aside the impugned orders, and held that the appellants were entitled to the CENVAT credit claimed.3. SIGNIFICANT HOLDINGSThe Tribunal's decision rests on the following crucial legal reasoning preserved verbatim:'The tower is brought to the site in CKD or SKD form and assembled at the site. If it is to be dismantled, it only involves unbolting of the nuts and bolts...there is no damage to the tower per se.''The tower which is affixed to the earth and thus appears to be immovable, can be dismantled from the existing site and reassembled without causing any change in its character...Such affixing is only for the purpose of maintaining stability of the tower...Affixing of the tower to the earth or building is not for the permanent beneficial enjoyment of the land or building, but to make it stable for effective functioning of the antenna...''We, therefore, agree with the conclusion arrived at by the Delhi High Court that towers and shelters (PFBs) support the BTS/antenna for effective transmission of mobile signals and thus enhance their efficiency and since these articles are components/accessories of BTS/antenna which are admittedly 'capital goods' falling under Chapter 85 within sub-clause (i) of Rule 2(a)(A) of CENVAT Rules, these items consequently are covered by the definition of 'capital goods' within the meaning of sub-clause (iii) read with sub-clause (i) of Rule 2(a)(A) of CENVAT Rules.'Core principles established include:(i) The functional and structural characteristics of transmission towers and prefabricated shelters negate their classification as immovable property for the purposes of CENVAT credit.(ii) Such goods, even when affixed to land or buildings for stability, retain their identity as capital goods eligible for CENVAT credit.(iii) The Supreme Court's interpretation is binding and overrides contrary findings by lower authorities.Final determinations on each issue:(a) Transmission towers and prefabricated buildings/shelters used in BTS installation qualify as 'capital goods' under the CENVAT Credit Rules.(b) The appellants are entitled to avail CENVAT credit on the excise duty paid on these goods.(c) The demand for recovery of CENVAT credit confirmed by the original authority is not sustainable and is set aside.