Supreme Court: While considering the issue whether the mobile service providers (MSPs) who pay excise duties on various items for setting up their business more particularly for erection of mobile towers and peripherals like pre-fabricated buildings (PFBs) etc. can take the benefit of CENVAT Credit under the CENVAT Credit Rules, 2004 (“CENVAT Rules”) for the purpose of payment of service tax on the output services rendered by them; the Division Bench of B.V. Nagarathna and N. Kotiswar Singh*, JJ., upheld the view rendered by Delhi High Court in Vodafone Mobile Services Ltd. v. CST, (2019) 67 GSTR 434, which extended benefit of CENVAT credit to the MSPs.
The Court opined that, towers and shelters (PFBs) support the Base Transreceiver System (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 Rule 2(a)(A)(i) of CENVAT Rules, these items consequently are covered by the definition of “capital goods” within the meaning of Rule 2(a)(A) (iii) read with Rule 2(a)(A) (i) of CENVAT Rules.
Furthermore, 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 Court further said that since tower and pre-fabricated buildings (PFBs) are “goods” and not immovable property and since these goods are used for providing mobile telecommunication services, therefore, they would also qualify as “inputs” under Rule 2(k) for the purpose of credit benefits under the CENVAT Rules.
Background:
The matter came up before the Supreme Court after Bombay High Court in Bharti Airtel Ltd. v. CCE, (2014) 1 HCC (Bom) 68, held that mobile towers and other components do not fall within the definition of “capital goods” as defined under Rule 2(a)(A) of the CENVAT Rules, nor are these “inputs” within the meaning of Rule 2(k) and, hence, the MSP is not entitled to CENVAT credit on duty paid on these items. Whereas Delhi High Court in Vodafone (supra), rendered the opposite view.
Court’s Assessment:
In order to resolve the conundrum, the Court firstly deliberated over the definition of “goods”. It was noted that the word has not been defined in the CENVAT Rules; hence referring to other statutes to understand its meaning, the Court then primarily relied on the definition provided under Sale of Goods Act, 1930, which defines “goods” as every kind of movable property other than actionable claim and money; and includes stocks, shares, growing crops, grass, and things attached to forming part of the land which are agreed to be severed before sale or under contract of sale.
The Court pointed out that towers and pre-fabricated buildings are neither actionable claim nor money, nor do they come within the inclusive clause of the definition, viz., stocks, shares, growing crops, grass, and things attached to forming part of the land which are agreed to be severed before sale or under contract of sale. The Court hence considered whether these items then fall within the purview of movable or immovable property. Observing the definition of movable property in General Clauses Act, 1897 and immovable property from Transfer of Property Act, 1882, the Court had to consider whether towers and pre-fabricated buildings are attached to the earth or are permanently fastened to anything attached to the earth, for if these are found to be so, these will be immovable properties and hence cannot be “goods” and consequently, cannot be “capital goods” within the scope of the CENVAT Rules.
The Court pointed out that to determine whether any property is movable or immovable, the Court, in the light of the statutory provisions has applied certain principles. It was also noted that such determination may be done based on applying several criteria on the facts of each case.
The Court pointed out that while mobile tower cannot be shifted to another location without dismantling, it can be bought and brought in a completely knocked-down (CKD) or semi-knocked-down (SKD) condition and it was erected and installed at the site after assembling the parts. “If the said mobile tower is to be shifted to another location, it obviously has to be dismantled and restored to its SKD or CKD condition and thereafter re-erected, which however, would not entail any damage to it”.
The Court opined that merely because certain articles are attached to the earth, it does not ipso facto render these immovable properties. If such attachment to earth is not intended to be permanent but for providing support to the goods concerned and make their functioning more effective, and if such items can still be dismantled without any damage or without bringing any change in the nature of the goods and can be moved to market and sold, such goods cannot be considered immovable.
The Court applied the Principles of — Nature of Annexation; Object of Annexation; Intendment of parties; Functionality test; Permanency test and Marketability test. It was noted that it is on the tower that the antennas are mounted and affixed at proper height, to make these stable. Since the antennas are used for receiving and sending radio signals, these need to be attached at a certain height, and these are required to be stable and wobble-free. It is not in dispute that the mobile tower is attached and fastened to the earth or building to provide stability to the same and to make antennas unshakable due to wind, rain or any other external force(s). The mobile tower is bought and brought in the CKD or SKD form from the manufacturers and same is installed at the site by assembling the parts which also consists of MS angles and channels. The tower, after being assembled and fixed to the earth or a building can be dismantled without any change in the nature of the tower, and the tower can be removed and shifted to any other location as per the needs and requirements of the service provider and also can be re-sold in the market in the same form and hence both, the functionality and marketability tests can be said to be fulfilled in the instant case.
The tower which is affixed to the earth and thus appears to be immovable, can be dismantled from the existing site and re-assembled without causing any change in its character. It can be moved to any other place and also sold in the market. “These attributes negate the permanency test, which is a characteristic of immovable property”. The tower when fixed to the earth or the building or the civil foundation by nuts and bolts does not get assimilated with the earth or building permanently. Such affixing is only for the purpose of maintaining stability of the tower and keep it wobble free so that the antenna which is hoisted on it can receive and transmit the electromagnetic signals effectively and without any disturbance. 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 for seamless rendering of mobile services by the service provider to the consumers/subscribers. Same is the case with prefabricated buildings (PFB). Applying the functionality test, it can be stated that the attachment of tower to the earth /building is not for the benefit of the land or the building but for better functioning of the antenna which is fixed on the tower. Thus, based on functionality test it can be said that tower is a movable property.
Applying the tests of permanency, intendment, functionality and marketability, it is quite clear that these items are movable within the meaning of Section 3 of the Transfer of Property Act, read with Section 3 (36) of the General Clause Act. Therefore, the Court opined that mobile towers and PFBs are movable properties and hence, “goods”.
The Court then considered whether mobile towers and PFBs are “capital goods” for the purposes of Rule 2(a)(A) of CENVAT Rules. It was noted that neither tower nor prefabricated shelter/building (PFB) finds mention under any of the Chapters/Heading specified under Rule 2(a)(A) (i), nor these are pollution control equipment to fall within Rule 2(a)(A) (ii). Hence, these items on their own cannot be said to be “capital goods” within the meaning of Rule 2(a)(A) (i) and (ii). Hence the Court had to consider whether these items can be “capital goods” within the meaning of Rule 2(a)(A) (iii).
Referring to the dictionary meaning of “accessory” which means any such item which adds to the beauty, convenience or effectiveness of some other items can be said to be accessory of that other thing and it may or may not be essential for functioning of main machinery; the Court pointed out that it is evident is that the tower is a structure fixed to the earth or building on which microwave antenna is fastened to provide the necessary height and stability to the antenna by making it steady and wobble free. The function of antenna as part of the BTS is to receive and transmit radio signal and is used for providing mobile telecom service to the subscribers. The tower itself is not an electrical component of microwave antenna per-se, yet it is necessary and helps in keeping the antenna at proper height and in a stable position so that the antenna can transmit signals for ensuring uninterrupted and seamless services to the subscribers.
“It is with the aid of the tower that the potential of the antenna is fully realised, making it function optimally. Without tower, antenna cannot effectively function for the purpose it is used. Hence, there can be no doubt that tower is to be considered as an accessory of antenna”.
Similarly, the PFB houses other BTS equipment and alternative electricity source in the form of diesel generators and other equipment to provide alternative and uninterrupted power supply to the antenna so that in the event of failure of main power supply, the generator can instantly provide backup electricity supply to the antenna and BTS. The PFBs house electric cables, other equipment related to antenna, BTS and generator. Thus, PFBs enhance the efficacy and functioning of mobile antenna as well as BTS and accordingly, PFBs can also be considered as accessories to the antenna and BTS which are “capital goods” falling under Chapter 85 of the Schedule to the Central Excise Tariff.
There is no dispute to the fact that BTS is a composite system consisting of the transmitter, receiver, antenna and other equipment, and antenna can be said to be an integral part of BTS. The tower is needed to keep the antenna at an appropriate height and keep it stable. Without the tower, it is not possible to hoist the antenna at the requisite height and without it being securely fastened to the tower, antenna cannot be kept firm and steady for proper receipt and transmission of radio signals. Thus, there cannot be any doubt that a mobile tower can be treated to be an accessory of antenna and BTS. Accordingly, since in terms of Rule 2(a)(A) (iii) all components, spares and accessories of such capital goods falling under Rule 2(a)(A) (i) would also be treated as capital goods, a mobile tower can also be treated as “capital good”.
The Court also opined that even if the definition of “input” with reference to output service may not have been explained in an expansive manner as in the case of manufacture of final product under Rule 2(k)(i), the definition of “input” with reference to providing output service under Rule 2(k)(ii) need not be given a restrictive meaning as sought to be done by the CESTAT by holding that tower is not used directly for transmission of signal. “In our view since the subject matter is same, i.e., what amounts to “input” though the end use is for two different products, one tangible, in the form of final manufactured product, and one intangible i.e., output service, applying similar tests to determine what amounts to “input” would not be impermissible”.
Therefore, while upholding the view taken by Delhi High Court in Vodafone (supra), the Court set aside the view taken by Bombay High Court in Bharti Airtel (supra).
[Bharti Airtel Ltd. v. Commissioner of Central Excise, 2024 SCC OnLine SC 3374, decided on 20-11-2024]
*Judgment by Justice N. Kotiswar Singh
Know Thy Newly Appointed Supreme Court Judge | Justice Nongmeikapam Kotiswar Singh
Advocates who appeared in this case :
Mr. V Lakshmikumaran, Adv. Mr. Yogendra Aldak, Adv. Mr. Kunal Kapoor, Adv. Ms. Neha Choudhary, Adv. Ms. Charanya Lakshmikumaran, AOR Mr. Ayush Agarwal, Adv. Ms. Umang Motiyani, Adv. Ms. Falguni Gupta, Adv. Mr. Mukesh Kumar Maroria, AOR Mr. Punit Dutt Tyagi, AOR Mr. Arvind P. Datar, Sr. Adv. Mr. Tarun Gulati, Sr. Adv. Mr. Kumar Visalaksh, Adv. Mr. Udit Jain, Adv. Mr. Pranav Bansal, Adv. Mr. Mahfooz Ahsan Nazki, AOR Mr. Harish N. Salve, Sr. Adv. Ms. Anuradha Dutt, Adv. Mr. Tushar Jarwal, Adv. Mr. Rahul Sateeja, Adv. Mr. Vikrant A. Maheshwari, Adv. Mr. Raghav Dutt, Adv. Ms. Pakhi Jain, Adv. Ms. B. Vijayalakshmi Menon, AOR Mr. Mahesh Agarwal, Adv. Mr. Rishi Agrawala, Adv. Ms. Sayaree Basu Mallik, Adv. Mr. Abhinabh Garg, Adv. Mr. E. C. Agrawala, AOR Mr. Arvind P. Datar, Sr. Adv. Mr. Tarun Gulati, Sr. Adv. Mr. Kumar Visalaksh, Adv. Mr. Udit Jain, Adv. Mr. Pranav Bansal, Adv. Mr. M. P. Devanath, AOR Mr. Sarad Kumar Singhania, Adv. Ms. Rashmi Singhania, AOR Mr. Yash Singhania, Adv. Mr. B. Krishna Prasad, AOR Mr. Gurmeet Singh Makker, AOR Mr. Puneet Agarwal, Adv. Mr. Yuvraj Singh, Adv. Ms. Shruti Garg, Adv. Mr. Amrendra Kumar Singh, Adv. Mr. Chetan Kumar Shukla, Adv. Mr. Santosh Kumar, AOR Mr. Rahul Bhatt, Adv. Ms. Hemlat Rawat, Adv. Mr. Harish N Salve, Sr. Adv. Mr. K. R. Sasiprabhu, AOR Mr. Vipin Jain, Adv. Ms. Shilpa Balani, Adv. Mr. Vappangi Sai Varaprasad, Adv. Mr. Bhavuk Agarwal, Adv. Mr. Raghav Shankar, Adv. Mr. Vishnu Sharma A S, Adv. Mr. Vishal Agarwal, Adv. Mr. Prakhar Agarwal, Adv