CENVAT Credit on Cellular Phone Towers- Twist in Tower

By Vijay Kumar

IN its letter in CBEC F.No.137/315/2007-CX.4 Dated February 26, 2008, the CBEC wrote to all Chief Commissioners, DGST, DGCEI and all Service Tax Commissioners that it has been brought to the notice of the Board that telecom operators are availing CENVAT Credit on goods like angles, channels, beams, which are used for building transmission towers. Similarly, CENVAT Credit is also being availed on pre-fabricated building, shelters, PUF panels, etc., used for housing/storage of generating sets and other equipments. It appears that the telecom operators claim these items to be ‘inputs' for providing telecom services.

And Board opined: -

The items mentioned above are used for erecting towers, and making housing/storage units. Thus, these goods are used in making products that cannot be called as excisable goods, being attached to earth, and are not chargeable to excise duty. The items such as angles, channels, beams, etc., are this inputs for civil structures and as such, are not used for providing taxable service. Therefore, it is the considered view of the Board that credit of duty paid on such items is not available to the telecom service providers.

Show Cause Notices obviously flew in all directions, but six years later the Board found strong support in the Bombay High Court.

In Bharti Airtel Ltd Vs Commissioner - 2014-TIOL-1452-HC-MUM-ST, the Bombay High Court held that the towers and parts thereof and the prefabricated building, printers and office chairs are not capital goods under the Credit Rules, 2004 and also that the said goods are not inputs falling under Rule 2(k) of the Credit Rules. The High Court found no infirmity or illegality in the findings as recorded by the tribunal in holding that the subject items are neither capital goods under Rule 2(a) nor inputs under Rule 2(k) of the Credit Rules and hence CENVAT credit of the duty paid thereon was not admissible to the appellants.

An elated Board brought this judgement to notice of all concerned for compliance in CBEC Instruction in F. No. 267/60/2014-CX.8, Dated: November 11, 2014.

Against the Bombay High Court judgement, the party has filed an appeal in the Supreme Court, which is pending and tagged with another important appeal against the AP High Court order in Sai Samhita Storages case (2011-TIOL-863-HC-AP-CX), in which the High Court held that unless excluded, all goods used in relation to manufacture of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit.

The tower issue is obviously before several adjudicating and appellate authorities. Recently the CESTAT referred the issue to a Larger Bench in Tower Vision India case - 2015-TIOL-1895-CESTAT-DEL. Earlier a Division Bench of the Tribunal had referred the matter to a Third Member.

So, the issue is pending in the Tribunal, the High Courts and the Supreme Court. Maybe the Board should ask for a transfer of all the cases to the Supreme Court.

While it stood thus, the issue reached the Bombay High Court again. Yesterday the High Court held that the Bharti Airtel decision does not require a relook and in any case the Court was bound by the decision of another Bench of the same court. We carried the decision yesterday itself - 2015-TIOL-2098-HC-MUM-ST .

The Towering Twist: Now the telecom towers are not maintained by the cellular operators but by ‘stand alone' tower managers who provided service under business support service. The CESTAT in Reliance Infratel - 2015-TIOL-516-CESTAT-MUM distinguished the Bharti Airtel judgement and allowed credit in such cases.