By TIOL News Service

MUMBAI, MAR 20, 2015: DURING the course of the audit it was observed that the assessee had availed and utilized CENVAT credit on goods viz. Bracket, Mounting Pole, Mount Clamps, Cable, Pre-fabricated Buildings/Shelter/Panel etc. falling under Chapter 39, 72, 73, 87, 91 and 94 of the CETA, 1985. These goods were used in erection/fabrication of Telecom Towers. These Telecom Towers are used on shareable basis by various Telecom companies for providing Telecom Service for a consideration. The appellant paid service tax under the category of "Business Support Service" for providing passive telecom infrastructure by way of Telecom towers, to various cellular telecom operators.

The department noted that Telecom Towers are fixed to earth and become an immovable property which are neither chargeable to excise duty nor payment of service tax.

Therefore, they harbored a view that the said goods on which credit was taken are not covered within the ambit of the definition of "Capital Goods" provided under Rule 2(a)(A)(i) of the CCR, 2004.

SCNs came to be issued for the period 2007-08 to 2011-12 and a total CENVAT credit of Rs.45 crores (approx) came to be disallowed. Penalties in equal measure also found their way into the order and not to mention interest.

Before the CESTAT the appellant referred to various case laws and made the following submissions -

++ GTL Infrastructure Ltd. - 2014-TIOL-1768-CESTAT-MUM. - it was held that Cenvat Credit is allowed on various items such as Cement, Tower parts, Structural steel etc. used in providing service of 'Passive Telecom Infrastructure' under the category of Business Auxiliary Service in terms of Rule 2 (k)(ii) of the Cenvat Credit Rules.

++ The present case is identical in facts to the case of GTL except that in the case of GTL the output service is BAS i.e. Business Auxiliary Service whereas in their case it is BSS i.e. Business Support Service.

+ Bharti Airtel Ltd. Vs. Commissioner of Central Excise, Pune-III - 2014-TIOL-1452-HC-MUM-ST - High Court held that Cenvat Credit on parts of Tower cannot be allowed either as capital goods specified in Rule 2(a)(A) or as inputs defined in Rule 2(k) of the Cenvat Credit Rules as ultimately the tower and parts thereof are fastened and fixed to the earth and after their erection become immoveable and, therefore, cannot be termed as 'goods'.

++ The judgment is distinguishable as the appellants are not seeking input credit under Rule 2(a)(A) i.e. on capital goods.

++ Sai Sahmita Storages Pvt. Ltd. Vs. Commissioner of Central Excise - 2011-TIOL-863-HC-AP-CX.

++ The facts of their case are similar to the case of Sai Sahmita Storages (P) Ltd. as they claimed Cenvat Credit on inputs for providing output service in terms of Rule 2(k)(ii). They have not claimed Cenvat Credit on towers as capital goods.

++ They are not using towers as inputs for providing Telecommunication Service. The fundamental distinction in their case is that they are not providing Telecommunication Service as output service. They are providing Business Support Service in the form of 'Passive Telecom Infrastructure' on which any telecom operator can install their antennas. Further, they are making a direct claim for credit on inputs used for providing output services in terms of Rule 2 (k)(ii) of the Rules.

The AR rebutted the claims of the appellant by emphasizing that initially the appellant took CENVAT Credit on the impugned goods by terming them as capital goods. However, the Chapter Heading of these goods, as declared in their Cenvat register, such as Rack (Chapter heading 7308), Pipes (Chapter Heading 3917), Pre-fabricated Shelter (Chapter Heading 9406) do not fall in the ambit of capital goods as defined in Rule 2 (a)(A). Relying on the Bharti Airtel Ltd. case it is submitted that as there is no excise liability on towers, being immovable property, therefore, no credit is admissible on the inputs such as steel which go into making of the tower. It is also added that the promoters of the appellant had two group companies, namely, the Telecommunication Operator and Reliance Infratel Ltd. and the latter company installed communication towers but other telecom operators can also put their antennas on the towers owned by appellant. Therefore, there is no difference between the case of Bharti Airtel Ltd. and the present case and the credit is not admissible.

The Bench inter alia observed that in the case of GTL Infrastructure Ltd. Cenvat Credit on steel and other items was held to be admissible. Further, the judgment in the case of Bharti Airtel Ltd. relied upon by Revenue was delivered later and, therefore, it was necessary to examine the issue at hand with reference to the said judgment.

After adverting to paragraphs 2, 23, 25(II)(a), 25(II)(e) and 27 of the decision of the High Court in the case of Bharti Airtel and extracting the same, the Bench observed -

"7.3 It is clear from the above findings that the Hon'ble High Court was examining the issue on a different platform of facts. Hon'ble High Court was concerned with admissibility of CENVAT Credit of duty paid on tower parts for providing telecom services. The towers and parts were held to be immovable, hence not goods and not excisable and therefore not considered as input goods for providing telecom service. But in the present case the question of nexus between tower parts and output service of telecommunication is not under consideration. In the case of Bharti Airtel Ltd. (supra), Cenvat Credit was denied on inputs and capital goods used for providing the output service namely Telecommunication Service…."

Thus, it is seen that the High Court essentially rejected the admissibility of Cenvat Credit on the ground that towers and parts thereof are fastened and fixed to the earth and, therefore, cannot be goods and, therefore, they are not covered by the definition of capital goods and inputs which presuppose the existence of goods. But the facts and circumstances in the present case are different."

The Bench also quoted from the last paragraph 33 of the judgment of the Bombay High Court where it is mentioned -

"in any case towers and PFB are in the nature of immovable goods and are non-marketable and non-excisable. If this be the position then towers and parts thereof cannot be classified as inputs so as to fall within the definition of Rule 2(k) of the credit rules. We clarify that we are not deciding any wider question but restricting our conclusion to the facts and circumstances which have fell for our consideration in these appeals."

The Bench thereafter distinguished the case laws cited by the Revenue and observed -

++ There is no denying the fact that the resultant output service provided by them is 'Passive Telecom Infrastructure' i.e. Business Support Service. Therefore, there is direct nexus of the output services and the credit taken on the goods procured such as steel, racks, bolts etc. which are excisable and were cleared under Central Excise invoices showing payment of Central Excise duty. The payment of Central Excise duty on these goods and their assessment has not been questioned at the end of the supplier.

++ Without use of these duty paid towers/parts as inputs, the Business Support Service in the form of Passive Telecom Infrastructure could not have been provided. The appellant availed credit under Rule 3(1)(i) which allows Cenvat credit on any inputs or capital goods received by the provider of output service. The appellant received inputs such as structural steel for providing 'Passive Telecom Infrastructure'. In fact, in Rule 2(k)(ii) there is no restriction on the coverage of inputs except for oil and petrol.

++ In the present case the inputs namely tower parts are cleared as goods from the supplier. Therefore, credit on them is admissible under Rule 2(k) (ii) for providing output service i.e. Business Support Service. The inputs are not immovable when they are purchased and then brought to the site for creation of towers. Merely because the tower parts etc. are assembled together, it would be totally unreasonable to suggest that Cenvat Credit on them is not admissible despite Rule 2(k)(ii). This Rule has to be interpreted as it stands.

++ Reliance is placed on the High Court of HP judgment in the case of Gujarat Ambuja Cement - 2008-TIOL-683-HC-HP and the Tribunal decision in the case of Commissioner of Central Excise Raigad vs. JSW Ispat Steel Ltd. - 2013-TIOL-1758-CESTAT-MUM in which it was held that excise duty paid on parts of components would be admissible even if they are assembled into goods which are immovable or exempted. By analogy in the present case Cenvat Credit would be admissible under Rule 2(k) (ii) ibid.

++ AR contended that the appellant had claimed Cenvat Credit on capital goods in their returns. We note that if law provides credit on inputs under Rule 2(k)(ii) they cannot be precluded from availing this statutory right.

Holding that the appellant is entitled to CENVAT credit, the orders were set aside and the appeals were allowed.

(See 2015-TIOL-516-CESTAT-MUM)