By TIOL News Service

MUMBAI, SEPT 17, 2014: THE appellant does the following activity:

(i) Planning for providing 'Passive Telecom Infrastructure' by its installation at various sites to be used by the Cellular Telecom Operators, which could be shared by two or more Operators, while the appellant was to operate and maintain the 'Passive Telecom Infrastructure' and provide committed uptime in excess of 99% to the Operators.

(ii) In this proposed business plan of the Appellant, multiple Cellular Telecom Operators then could share the said 'Passive Telecom Infrastructure' by putting their antennas and other equipment, to send and receive electronic signals for their Cellular Telephony Services.

(iii) The proposed revenue model for appellant comprised of:

(a) Provisioning of charges for providing the 'Passive Telecom Infrastructure' to the Cellular Operators for enabling them to provide their 'Cellular Telephony Services', and

(b) Operations and Maintenance Fees for operating and maintaining the said Passive Telecom Infrastructure.

The appellants sought clarification from the department vide letter dt. 22.8.2005 as to whether the said activity of Passive Telecom Infrastructure comprising of tower/masts/pole, shelter, battery banks, DG Sets etc. attracts service tax under the category of Business Auxiliary Service. It was informed vide letter dt.20.9.2005 that appellants are liable to pay service tax under the category of 'Business Auxiliary Service'.

After conducting audit in June 2009, the Department objected to availment of CENVAT Credit on parts of Towers, BTS Cabins etc.

Following SCNs were issued to the appellant:

The adjudicating authority relied on the decisions in BharatiAirtel Ltd. Vs. Commissioner of Central Excise, Pune 2012-TIOL-209-CESTAT-MUM, Commissioner of C.Ex., Mumbai-IV Vs. Hutchison Max Telecom P. Ltd. 2008-TIOL-1509-CESTAT-DEL and Vandana Global Ltd. V. Commissioner of C.Ex., Raipur 2010-TIOL-624-CESTAT-DEL-LB and denied the credit along with imposition of penalties and interest.

After hearing the submissions made by both sides, the Bench observed -

++ Rule 2(k)(i) deals with manufacturing activity. Admittedly, the appellants are providing output service, therefore, Rule 2k(ii) ibid is relevant to the facts of the case in hand, wherein it has been said that “all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service”. The adjudicating authority has heavily relied on Explanation 2 to the said Rules as same has been discussed by the Tribunal in the case of BharatiAirtel Ltd. (supra). In fact, the explanation also clarified that inputs includes goods used in manufacture of capital goods which are further used in the factory of the manufacturer. But in the case in hand, the appellant is a service provider. Therefore, the said explanation has no relevance to the facts of this case. As per Rule 2 (k)(ii) of the CENVAT Credit Rules, 2004 all goods are entitled for CENVAT Credit which are used for providing any output service.

++ In this case nowhere it is disputed by any of the parties that the tower/BTS cabins were not used by the appellant for providing service namely 'Business Auxiliary Service'. Therefore, the CENVAT Credit cannot be denied. These facts have not been appreciated by the adjudicating authority and the adjudicating authority heavily relied on the definition of inputs as per Rule 2(k) (i) and Explanation-II to the said Rule.

++ The adjudicating authority has heavily relied upon the decision of BharatiAirtel Ltd. (supra); in the said case the facts are totally different to the facts of the case in hand. In fact in that case appellant was engaged in providing cellular telephone service and as per Board Circular No. 137/315/2007 CX-4 dt. 26.2.2008, it is clarified that no CENVAT Credit on towers and BTS cabin is permissible for Cellular Phone Service Provider. In the instant case, the towers and the cabins are used by the appellant as Passive Telecom Infrastructure for providing output service namely ‘Business Auxiliary Service' as declared by the appellant to the department in 2005 and agreed to by the department in their reply dt.20.9.2005.

++ In these circumstances, the appellants are entitled for input service credit on towers and cabin, which have been used by the appellant for providing output service under the category of ‘Business Auxiliary Service'.

Limitation:

As nothing has been suppressed by the appellant and they sought clarification about the liability before providing said service, therefore, demand of extended period of limitation is also not sustainable. In the 3 rd show cause notice CENVAT Credit has been denied to the appellant on the capital goods used in the State of Jammu & Kashmir. The appellant made an entry in their books for availment of CENVAT Credit on the goods used in Jammu & Kashmir, but on pointing out, they immediately reversed the said credit without utilizing the same. Therefore, they are not entitled to pay interest as per the decision of the High Court of Karnataka in the case of Commissioner of C.Ex., & S.T., LTU, Bangalore Vs. Bill Forge Pvt. Ltd. 2011-TIOL-799-HC-KAR-CX.

In fine, the order-in-original was set aside and the appeal was allowed.

(See 2014-TIOL-1768-CESTAT-MUM)