* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 27.07.2018
Pronounced on: 31.10.2018
+ CEAC 12/2016, C.M. APPL.37207/2016
VODAFONE MOBILE SERVICES LIMITED ......Appellant
versus
COMMISSIONER OF SERVICE TAX, DELHI ..... Respondent
+ CEAC 13/2016, C.M. APPL.37208/2016
VODAFONE MOBILE SERVICES LIMITED ...... Appellant
versus
COMMISSIONER OF SERVICE TAX, DELHI ..... Respondent
+ CEAC 6/2017, C.M. APPL.6902/2017 & 37758/2017
COMMISSIONER OF SERVICE TAX, AHMEDABAD
.... Appellant
versus
M/S. VODAFONE MOBILE SERVICES LIMITED..... Respondent
+ CEAC 4/2018, C.M. APPL.3649/2018
VODAFONE MOBILE SERVICES LIMITED ...... Appellant
versus
COMMISSIONER OF SERVICE TAX, DELHI ..... Respondent
+ SERTA 14/2016, C.M. APPL.45647/2016
INDUS TOWERS LIMITED ...... Appellant
versus
THE COMMISSIONER OF SERVICE TAX NEW DELHI
..... Respondent
+ SERTA 15/2016
INDUS TOWERS LIMITED ...... Appellant
versus
THE COMMISSIONER OF SERVICE TAX NEW DELHI
..... Respondent
+ SERTA 16/2016
INDUS TOWERS LIMITED ...... Appellant
CEAC 12/2016 and other connected matter Page 1 of 67
versus
THE COMMISSIONER OF SERVICE TAX NEW DELHI
..... Respondent
+ SERTA 17/2016
INDUS TOWERS LIMITED ...... Appellant
versus
THE COMMISSIONER OF SERVICE TAX NEW DELHI
..... Respondent
+ SERTA 18/2016, C.M. APPL.33215/2016
TOWER VISION INDIA PRIVATE LIMITED ..... Appellant
versus
THE COMMISSIONER OF CENTRAL EXCISE (ADJ), NEW
DELHI ..... Respondent
+ SERTA 19/2016, C.M. APPL.37968/2016 & 45237/2016
BHARTI INFRATEL LIMITED .....Appellant
versus
THE COMMISSIONER OF SERVICE TAX, NEW DELHI
..... Respondent
+ SERTA 20/2016, C.M. APPL.37971/2016 & 45236/2016
BHARTI INFRATEL LIMITED ...Appellant
versus
THE COMMISSIONER OF SERVICE TAX, NEW DELHI
...Respondent
Through : Sh. V. Laxmi Kumaran with Ms.
Aakanksha Munjal, Sh. Karan Sachdeva and Sh.
Utkarsh Maria, Advocates, for appellants in Item
Nos. CEAC 12/2016, CEAC 13/2016 & CEAC
4/2018 and for respondent in CEAC 6/2017.
Sh. V. Lakshmi Kumaran, Sh. Karan Sachdev, Sh.
Yogendra Aldak and Sh. Gajendra Maheshwari,
Advocates, for petitioner in SERTA 19/2016 &
SERTA 20/2016.
Sh. Gajendra Maheshwari, Sh. Vikram Narula and
Ms. Ananya Sarkar, Advocate, for appellant, in
CEAC 12-13/2016, CEAC 6/2017, CEAC 4/2018,
SERTA 14-20/2016.
Sh. Sanjeev Narula, CGSC with Sh. Abhishek
CEAC 12/2016 and other connected matter Page 2 of 67
Ghai, Advocates, for respondent in CEAC 12-
13/2016, CEAC 6/2017 & CEAC 4/2018.
Sh. Gajendra Maheshwari, Advocate, for
petitioner, in SERTA 14-17/2016.
Sh. Tarun Gulati, Sh. Sparsh Bhargava and Sh.
Anupam Mishra, Advocates, for intervener, in
SERTA 14/2016.
Sh. Deepak Anand, Jr. Standing Counsel with Ms.
Hemlata Rawat and Sh. Aayushmaan Vatsyayana,
Advocates, for respondents, in SERTA 15-
20/2016.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
MR. JUSTICE S. RAVINDRA BHAT
%
1. In all these appeals, preferred under Section 35E of the Central Excise
Act, 1944 (hereafter referred as the "Excise Act") and Section 83 of the
Finance Act, 1994 ("the Act") the common question of law is whether parts
of base transmission systems (hereafter "BTS") are classifiable under Tariff
Heading 8517 and, consequently, all components, spares and accessories
qualify as capital goods in terms of Rule 2(a)(A)(iii), of the CENVAT Credit
Rules, 2004 (hereafter "the Credit Rules") regardless of whether those
components, spares and accessories only fall under Chapter 85. The
questions of law framed are:
i) Whether the CESTAT was right in concluding that the towers,
shelter and accessories used by the Appellants for providing telecom
services are immovable property?
CEAC 12/2016 and other connected matter Page 3 of 67
ii) Whether the Appellants are entitled to claim CENVAT credit on
the towers, shelter as 'accessories' either as capital goods or input
goods in terms of Rule 2(a) or 2(k) of the Credit Rules?
iii) Whether the CESTAT erred in applying nexus test with reference
to MS Angles and Channels, whereas according to the Appellants
what was brought to the site were towers, shelter and accessories for
providing services?
iv) Whether the Appellants were justified, in terms of Rule 4 (1) of the
Credit Rules, in claiming CENVAT credit of excise duty paid by the
manufacturer of towers and shelters after receipt of such towers and
shelters at their premises (i.e. tower sites)?
v)Whether the emergence of immovable structure at an intermediate
stage (assuming without admitting) is a criterion for denial of
CENVAT credit?
2. The relevant facts are that the appellant Indus, (in SERTA No. 14-
20/2016) and the assessee respondent Vodafone, (in CEAC Nos. 4/2016,
6/2016, CEAC No. 12-14/2016), which are appeals by the Revenue, provide
cellular telephone services and accordingly, pay service tax applicable on
cellular telephone services. They, availed CENVAT credit on the excise duty
paid on towers, parts and shelters/pre-fabricated buildings purchased by it
and thereby used to provide output service. Such credit so availed was
utilised to pay service tax on output service viz. Cellular Mobile Service,
provided by the assessees. Show Cause Notices were issued by the Revenue
to the assessees, inter alia, alleging that they had wrongly claimed and
utilized CENVAT credit in contravention of the provisions of Rule 2(a)(A)
of Credit Rules. The assesses were called upon to show cause as to why (i)
CEAC 12/2016 and other connected matter Page 4 of 67
the CENVAT credit amount utilized wrongly should not be recovered from
them under the provisions of Rule 14 of the Credit Rules, read with Section
73 of the Act; (ii) penalty should not be imposed under provisions of Rule
15(1) of the Credit Rules on account of CENVAT Credit wrongly taken and
utilized; (iii) penalty should also not be imposed under provisions of Rule
15(2) of the Credit Rules read with Section 11AC of Excise Act for
CENVAT credit wrongly taken and utilized on account of suppression of the
facts; (iv) all such goods (detailed in annexures to the notices) should not be
confiscated under the provisions of Rule 15(1) of the Credit Rules; and (v)
interest should not be recovered from the assessees from the date on which
the CENVAT credit has been wrongly taken till the date of recovery of the
said credit, under provisions of Rule 14 of the Credit Rules read with Section
75 of the Act.
3. The Revenue alleged that the assessees had claimed and used, contrary
to the Credit Rules, credit in regard to certain goods which did not qualify as
capital goods within the meaning of the Credit Rules. It was stated that after
verification of documents and records relating to CENVAT credit on account
of capital goods for the periods in question, it was observed that the credit
availed was not in accordance with the provisions of Credit Rules and same
was in contravention of the Rules. The relevant Rule being Rule 2(a)(A) of
the Credit Rules which defined "Capital goods". It was stated that while
availing CENVAT credit in respect of any goods as "capital goods" the
requirement of Rule 2(a)(A) of the Credit Rules stipulates satisfaction of
following two conditions:-
(a) The goods should fall under a particular CSH or description specified for
the purpose;
CEAC 12/2016 and other connected matter Page 5 of 67
(b) That in case of the service provider, the goods should be used for
providing output service.
4. The Revenue alleged that CENVAT Credit availed by the assessees
during the various periods outlined in the show cause notices in respect of
the various items, including towers and parts of tower was in contravention
of Rule 2(a)(A) of the Credit Rules. Alleging that the assessees in their
return had omitted to give any 'chapter heading' under Central Excise Tariff
nor the use of the said goods in providing output service. Information, about
use of the goods and Chapter heading under the Central Excise Tariff Act
[hereafter "CETA"] was called for from the assessees, which were furnished.
It was alleged that the assessees had suppressed material facts and
knowingly, wilfully and wrongly had taken and utilized CENVAT credit on
those items.
5. The assessees resisted the show cause notices received by them
denying the allegations and the Revenues position. They stated that the
towers and parts of tower are capital goods and that credit is admissible on
towers and parts of towers also, as inputs. The assessees relied on the Credit
Rules introduced by the Central Government with effect from 10.09.2004
and especially Rule 3(1) (which defines the term "CENVAT Credit", Rule
2(a)(A) which defines "Capital goods" and Rule 2(k) which defines "input").
They argued that Rule 3(1) of the Credit Rules allows the service provider to
take credit of the excise duties paid on any "inputs" and "capital goods".
They argued that the definition of the term "capital goods" and "input" was
clear to include the said goods for availing credit of the duty paid. According
to the assesses, to qualify as "capital goods" under the Credit Rules, firstly,
CEAC 12/2016 and other connected matter Page 6 of 67
what was essential was that the articles had to be goods; secondly, the goods
must belong to any category as specified under Rule 2(a)(A)(i) to (vii) of the
Credit Rules and that goods must be used for providing output service. It was
stated that the assessees were service providers and, therefore, Rule 2 (k) (ii)
should be applied to them. Accordingly, all goods except LDO, HSD and
motor spirit were inputs provided and they are used for providing output
service. The appellant also placed reliance on Rule 4 of the Credit Rules to
contend that the credit in respect of "inputs" can be availed of immediately
on receipt of the goods in the premises of the service provider. It was stated
that credit of "inputs" can be taken on time and in any manner and by not
availing of the whole or part of the input credit immediately on receipt of
inputs in the factory, does not vitiate the right of the manufacturer or output
service provider to take un-availed credit later. The assessees argued, more
crucially that a mobile tower is part of the BTS, which is an integrated
system. Therefore, BTS was classifiable under heading 85.25 of CETA
which comprises of the tower also as one of its parts, without which the
output service cannot be provided. It was, therefore, contended that the
towers are part of the eligible capital goods, viz. BTS and are used for
providing output services, as also the towers were eligible for capital goods
credit.
6. The assessees stated that they had imported number of BTS for
installation at various sites and that the BTS equipment were classified under
heading No. 85.25 of the CETA, when imported. Depending on the site
condition, additional peripheral equipment such as battery back-up, rectifier,
UPS were also purchased by them. All these were brought to the site and
they were housed/installed in a pre-fabricated room or a building.
CEAC 12/2016 and other connected matter Page 7 of 67
Subsequently, installation of various equipments at the site is undertaken in
accordance with the Radio Frequency Design Plan. The assesses argued that
the material was ordered from various vendors having regard to the site lay
out and report of the structural consultant. All the material was supplied by
the vendors on payment of applicable duty on clearance from their factories.
Later, erection of the towers for supporting antennas is undertaken. The
tower comprises of poles for mounting of GSM and Microwave antenna. The
poles are given necessary angular supports to ensure their stable positioning.
Antenna mounts comprising of angles are fixed on these poles and the
antenna are mounted upon them.
7. It was stated that a pre-fabricated housing/shelter too was purchased
for housing electrical equipments viz. isolation transformers, batteries and
stabilizers, rectifiers etc. and telecom equipment like BTS and
Microwave/Radio Hops etc serve as a junction box. It was stated that the
telecom installation vendor installs the BTS telecom equipment and lays
cable (including feeder cables) from antenna to BTS. The electrical vendor
installs the electrical equipment and does the required wiring inside and
outside the room. A separate power supply connection is taken from the
concerned State Electricity Board as also the Diesel Generating (DG) set is
used as a back-up source for power supply in case of any mains failure. The
BTS and Microwave link is then commissioned and the site is integrated
with the main network.
8. It was urged that since the BTS as a whole is considered as a single
integrated system classifiable under 85.25 of CETA and was eligible capital
goods, towers and parts thereof which form part of the integrated system of
BTS, are part of specified capital goods eligible for capital goods credit. It
CEAC 12/2016 and other connected matter Page 8 of 67
was further stated that in any case credit is admissible on towers and parts of
towers as inputs as falling within the ambit of Rule 2(k) of the Credit Rules
which defines "input". It was stated that as per the definition of term "input"
irrespective of the classification of the said goods under the CETA, they will
qualify as "inputs" and will be eligible for input credit if they are used for
providing output service. In regard to the pre-fabricated building, the
appellant contended that they are eligible for capital goods credit as they
were part of the integrated BTS and in any case they were eligible to input
credit. As also, the same contention was raised in respect of office chairs and
printers. As regards the penalty as proposed to be levied under rule 15(1) and
(2) of the Credit Rules, the assessees submitted that the penalty provision is
not attracted in view of classification of their goods as capital goods and in
any case as "inputs". They denied that they had wrongly availed credit by
practicing fraud or by making wilful mis-statement, collusion or suppression
of facts. It was stated that there was no wilful suppression. It was, therefore,
submitted that the show cause notice as issued against them be dropped.
9. The Commissioner, after granting a hearing to all assesses and after
taking into consideration the provisions of the Credit Rules (especially, the
definition of 'capital goods' as defined under Rule 2(a)(A) and the definition
of the term 'inputs' as defined under rule 2(k) of the Credit Rules), rejected
their submissions. It was held that the assessees had wrongly availed of
different CENVAT credit amounts under provisions of Rule 14 of the Credit
Rules read with Section 73 of the Act. In respect of towers and parts thereof,
pre-fabricated building, printers and office chairs, the Commissioner
observed that the appellant had availed the benefit of CENVAT Credit on
BTS claiming to be a single integrated system consisting of tower, GSM or
CEAC 12/2016 and other connected matter Page 9 of 67
Microwave Antennas, Pre-fabricated building, isolation transformers,
electrical equipment and various other items. It was observed that these
systems have been treated as "composite system" classified under Chapter
85.25 of the CETA and that the appellant's contention that these systems
should be treated as 'capital goods' and credit be allowed, could not be
accepted. The Commissioner held that each of these goods had independent
functions and hence, they could not be treated and classified as a single unit.
It was observed that all capital goods are not eligible for credit and only
those relatable to the output services would be eligible for credit. It was
observed that only telecom equipment like BTS transmitters which were
used in providing telecom services alone would be liable to input credit. In
regard to the extended period, it was observed that the service tax is based on
self-assessment and therefore, it is the assessee who determines the duty and
discharges the same.
10. The assessees, and various other tower owners, appealed to the
CESTAT. By then, the decision of the Bombay High Court in Bharti Airtel
Ltd. v. Commissioner Central Excise, Pune - III 2014 (35) S.T.R. 865 (Bom)
had been rendered. On 28.07.2015, a two-member Bench of the CESTAT
recorded difference of opinion as regards availability of input credit to those
providing business auxiliary services; they referred their difference of
opinion, but at the same time, noted the ruling in Bharti Airtel (supra).
11. The larger, three-member bench of the CESTAT agreed with the
Revenue that the goods in question were not capital goods and that they were
also not inputs. CESTATs view was expressed in two opinions: a majority
and a concurring opinion. The majority held:
CEAC 12/2016 and other connected matter Page 10 of 67
On the above analysis, the first point for difference of opinion
referred to this Larger Bench relating to non-applicability of
the decision of the Hon'ble Bombay High Court in Bharti Airtel
to infrastructure companies to provide business support service
to telecom operators can be examined. We find in the normal
course the nature of output service should not have any bearing
to decide credit eligibility on capital goods now under dispute.
A distinction was sought to be made that the decision of
Hon'ble Bombay High Court was applicable only to active
telecom service providers and not to providers of passive
infrastructural support to such telecom operators. Reliance was
sought to be placed on the decision of the Tribunal in GTL
Infrastructure Ltd. v. CST, Mumbai reported in 2015 (37)
S.T.R. 577 (Tri. - Mumbai) and Tribunal's final order No.
A/382-383/2015 dated 26/11/2014 in Reliance Infratel Ltd. v.
CST, Mumbai - II reported in 2015 (38) S.T.R. 984 (Tri. -
Mumbai). We have perused the GTL Infrastructure Ltd.
decision. In the said decision it was mentioned that towers/BTS
Cabins were used for providing business auxiliary service and,
hence, CENVAT credit cannot be denied. Further, reliance
placed by the Original Authority on Explanation II and Rule 2
(k) (i) was found to be incorrect as the same dealt with a
manufacturer and not a service provider. The Tribunal was
referring to its earlier order in Bharti Airtel Ltd. v. CCE, Pune
reported in 2013 (29) S.T.R. 401 (Tri. - Mumbai) and observed
that the said case dealt with facts which are totally different. It
was found that since appellants were allowing the operators
right to install antenna and BTS equipments and rendering an
output service under business auxiliary service they were
eligible for credit. We find that this decision of Tribunal is not
based on a proper appreciation of the ratio of the Hon'ble
Bombay High Court. The Hon'ble Bombay High Court order in
Bharti Airtel Ltd. (supra) was not available to the Tribunal
while deciding GTL Infrastructure Ltd. The tower and BTS
Cabin are used for providing output service, here business
auxiliary/support service but the question is, is there any duty
claimed as credit paid on tower or BTS Cabins as installed at
site. These items cannot be considered as inputs as they were
CEAC 12/2016 and other connected matter Page 11 of 67
held to be immovable property. The inputs which suffered duty
like MS angles and pre-fabricated shelters, per se, were not
used for providing output service. In other words there is a
tower and cabin structure erected and embedded before such
support service could be provided to the telecom operators.
23. It is necessary to note that before infrastructure companies
came into the picture, telecom operators themselves were
putting up such infrastructure and using the same to provide
telecom service. In other words, in the absence of infrastructure
companies as an intermediary, telecom companies themselves
created such infrastructure and "provided" such business
support service to self. The issue of service tax liability in such
situation on business support service is not raised because
there are no two persons as a provider or recipient of such
service. In a sense such service was to the self. Considering
such factual matrix, we find that no distinction could be made
between the telecom operators and the infrastructure
companies in deciding the eligibility of CENVAT credit on the
impugned items now under consideration.
24. Further, it was contended by the appellants that even if
towers shelters and other materials are held to be immovable
property, credit cannot be denied on them. Reliance was placed
on the decision of Hon'ble Andhra Pradesh High Court in CCE,
Visakhapatnam - II v. Sai Sahmita Storages (P) Ltd. reported in
2011 (270) E.L.T. 33 (A.P.), Hon'ble Gujarat High Court
decision in Mundra Ports and Special Economic Zone Ltd.
reported in 2015 - TIOL - 1288 HC AHD ST and Hon'ble
Punjab & Haryana High Court decision in Belsonica Auto
Components India P. Ltd. reported in 2015 VIL 300 (P&H -
ST). In Sai Sahmita Storages (P) Ltd. (supra), the Hon'ble
Andhra Pradesh High Court held that there is no dispute that
the assessee used cement and TMT bar for providing storage
facility without which storage and warehousing services could
not have been provided. The question relating to creation of an
immovable asset and the implication of CENVAT credit flow in
such situation was not examined in detail in the said order.
CEAC 12/2016 and other connected matter Page 12 of 67
Similarly, the Hon'ble Gujarat High Court also arrived at
similar conclusion. It is seen the Hon'ble Punjab & Haryana
High Court in Belsonica Auto Components India P. Ltd. (supra)
was dealing with credit availability on input service paid on
construction of civil structure. In the present case, we are
dealing with credit eligibility of goods, either as inputs or as
capital goods. Further, with due respect to these decisions, it is
to be noted that the very same matters covered in the present
appeals are discussed elaborately on a similar set of facts by
the Hon'ble Bombay High Court in Bharti Airtel Ltd. (supra).
When there is a detailed examination and ruling on identical
set of facts by the Hon'ble High Court, the same are to be
followed. Further, the Hon'ble Bombay High Court reiterated
their findings arrived in Bharti Airtel Ltd. (supra) in the case of
Vodafone India Ltd. in their order dated 01/09/2015 in civil
appeal No. 126/2015 and others. The Hon'ble Bombay High
Court examined various contentions now raised in these
appeals and reiterated their findings recorded earlier in Bharti
Airtel Ltd. (supra).
25. In such a situation and in the absence of any material
before us to distinguish the said ratio vis-à-vis the fact of the
present case we find the ratio of the Hon'ble Bombay High
Court as laid down in Bharti Airtel Ltd. (supra) and Vodafone
India Ltd. (supra) should be followed. Hence, first point of
difference is answered against the appellant and in favour of
Revenue.
26. The second point of difference of opinion referred to the
Larger Bench is regarding the eligibility of the appellant to the
credit on shelters and parts as capital goods. We find that our
preceding analysis regarding ineligibility of credit on towers
and shelters is equally applicable to the said items. The only
reason for claiming the credit on shelters and parts is their
classification under Chapter 85. We find that a particular
classification of duty paid item by itself does not make the item
eligible for CENVAT credit. The eligibility of credit is
determined by the provisions of CENVAT Credit Rules. By
CEAC 12/2016 and other connected matter Page 13 of 67
classifying a product and paying duty under a particular
heading, an automatic claim for such credit for that item cannot
be made. The eligibility of any item for credit is to be decided
as per provisions of CENVAT Credit Rules, 2004. As discussed
elaborately hereinabove shelters were found to be not eligible
for CENVAT credit either as capital goods or as inputs and as
such some supplier classifying the product under Chapter 85 by
itself does not make them eligible for credit if they are
otherwise not entitled for the same. Learned Counsel contended
that the denial of credit as held by Hon'ble Bombay High Court
is only on classification of these shelters. We find that the
Hon'ble High Court categorically held that towers and PFB are
in the nature of immovable goods and are non-marketable and
non-excisable. Further, we find that the analogy drawn by
learned Counsel with plant and machinery to the present issue
is not correct. The plant and machinery classifiable under
specific tariff heading are manufactured and cleared on
payment of duty as such machinery. Here, the facts are clearly
different. Accordingly, the second point of reference is also
answered against the appellant and in favour of Revenue.
12. The President of the Tribunal (CESTAT) agreed with the majority, but
wrote a concurring opinion, wherein it was held that the decision cited by the
assessees -Commissioner of Central Excise v Solid and Correct Engineering
Works 2010 (5) SCC 122 was inapplicable. The separate opinion observed,
among others that:
39. Assessees contend before us that in the facts before us, as
in the case of Solid and Correct Engineering Works there is no
permanent affixation of towers and the pre-fabricated shelters
to the earth, permanently. These are fixed to foundations by
nuts and bolts, not with the intention to permanently attach
them to the earth or for the beneficial enjoyment thereof, but
only since securing these to a foundation is necessary to
provide stability and wobble/vibration free operation and to
ensure stability. Since affixation of towers and shelters is
without the necessary intent of making these a non-temporal
CEAC 12/2016 and other connected matter Page 14 of 67
part and parcel of the earth to which these are temporally fixed,
these continue to be movables and goods; and do not
normatively, undergo transformation as immovable property, is
the core contention.
40. An empirical and normative analyses of M.S. steel angles
and other parts used to construct towers or shelters or
affixation of towers obtained in CKD condition and pre-
fabricated shelters and the process employed for their erection
at a site; the degree of permanency that results from their
attachment to the site by bolting them on to concrete
foundations; whether the intendment in so embedding these to
the site, is for permanent and beneficial enjoyment of the earth
and other relevant and cognate fact specific aspects, by
applying the nuanced tests of immovability expounded in Solid
& Correct Engineering Works, may perhaps lead to a different
conclusion then the one emerging from the Hon'ble Bombay
High Court's rulings in Bharti Airtel Limited and Vodafone
India Limited or the Andhra Pradesh High Court's judgment in
BSNL.
41. In our respectful view however the challenge to the ratio
and conclusions of the High Court's decisions in Bharti Airtel
Limited and Vodafone India Limited, on the ground that these
are predicated on an incorrect and impermissible interpretation
of the rationes in Solid & Concrete Engineering Works, must
await an appellate consideration, when and if challenged, by
the Hon'ble Supreme Court. It is outside the province and
jurisdiction of this Tribunal to analyse and record a ruling on a
superior Court's analyses and elucidation of other binding
precedents. The A.P. High Court's judgment in BSNL, in the
context of levy of VAT, concluded that towers are immovable
property, after noticing and adverting to the judgment in Solid
& Correct Engineering Works. Though, the Solid & Concrete
Engineering Works ruling of the Hon'ble Supreme Court was
neither specifically referred to nor analysed in the Bharti Airtel
Limited ruling, it was specifically considered in the later
decision in Vodafone India Limited. Nevertheless, the Hon'ble
High Court was pleased to reiterate and affirm its earlier
decision in Bharti Airtel Limited, to conclude in conformity
CEAC 12/2016 and other connected matter Page 15 of 67
therewith. If the Hon'ble High Court was not persuaded to
reconsider, while adjudicating the lis in Vodafone India
Limited, its earlier decision in Bharti Airtel Limited on a
premise that its earlier decision might have been incongruous
with the ratio of the Apex Court's decision in Solid & Correct
Engineering Works, it is clearly beyond the province of this
Tribunal to embark upon such an exercise, on any grounds,
including the per-incuriam principle.
42. On the above analyses, we conclude that the Hon'ble
Bombay High Court judgments in Bharti Airtel Limited and
Vodafone India Limited, which are directly on the issue of the
character of towers and shelters and parts, and held to be
immovable property, constitute the binding law, in so far as we
are concerned. Since the provision of towers and shelters as
infrastructure used in the rendition of an output service is
common to both passive and active infrastructure providers,
whether of "BAS" or "BSS" in one case and "telecom service" in
the other, consequences of the application of the above Hon'ble
High Court's rulings, would not be different.
Assessees contentions in the present set of appeals
13. This Court proposes to describe the main outline of parties
submission on the first and principal issue and later, in respect of each
question, analyse the rival arguments. Mr. V. Lakshmikumaran, learned
counsel for the assessees argued that credit on towers and shelters and other
materials cannot be denied on the ground of immovability. He cited Rule 3
of the Credit Rules to urge that credit is admissible on all inputs and capital
goods which are received in the premises of service provider. In the present
case, towers and shelters are received in the premises of service providers.
Later, when the towers are embedded in earth, the eligibility of credit will
not change. It was argued that credit of input services cannot be denied on
the ground of immovability which is an irrelevant factor, because the
CEAC 12/2016 and other connected matter Page 16 of 67
character of the goods, and the purpose for which they are procured does not
change; they remain goods. It was submitted that besides the duty paid, the
documents clearly indicated the classification and, as such, the credit cannot
be denied at the recipients end.
14. It was argued that towers and shelters, ipso facto, qualify as 'inputs'.
Rule 2 (k) (ii) defines inputs as "all goods used for providing output
services". There is no bar to indicate that goods which do not fall under the
category of capital goods would not also qualify as inputs. It was submitted
that furthermore, towers, shelters MS Angles, etc are to be considered as
'accessories' of capital goods. For an item to fall under the category of
'components', 'spares' and 'accessories', it must be either a component or a
spare or an accessory and the classification of such item is immaterial. The
towers and shelters would qualify as ,,accessories. Without the tower, the
active infrastructure, namely antenna, cannot be placed on that altitude to
generate uninterrupted frequency.
15. Counsel submitted that telecommunication services cannot be
provided without towers and shelters and that the necessity test or the
,,functional utility test has to be applied. In support of this submission,
reliance is placed on the judgment of the Calcutta High Court in the case
of Singh Alloys & Steel Ltd. v. Associated Cement Company Ltd 1993 (66)
ELT 273. It was submitted that these goods are used for providing output
services on commercial scale and hence, they satisfied the ,,functional
utility test. It is submitted that the functional utility of the towers is
apparent from the fact that the antennas are installed on the towers. The
antennas continuously receive signals and transmit signals with the
subscriber's devices to authenticate subscriber's accounts and enable the
CEAC 12/2016 and other connected matter Page 17 of 67
roaming of the mobile subscriber.
16. Learned counsel argued that in the mobile telecommunication
service, towers are the "accessory" of the antenna and therefore, qualify as
capital goods falling under Chapter Heading 85. It is submitted that shelter
is also an accessory of BTS equipment falling under Chapter heading 85. It
is submitted that capital goods viz. Antenna and BTS are fitted into the
tower and shelter respectively to provide telecommunication service.
17. Mr. Deepak Anand, learned counsel for the Revenue, argued that the
findings and order of the CESTAT were justified and based on sound
reasons. He urged that the issue relating to eligibility of towers and shelters
for CENVAT credit has been clearly settled by the Bombay High Court in
Bharti Airtel Ltd. (supra). The clear finding after elaborate analysis by the
High Court was not deviated by any other court or over-ruled by the
Supreme Court. It was next argued that the Central Excise duty paid on MS
Angles, Channels and pre-fabricated buildings are claimed as credit by the
assessees. Such items have no direct nexus to the output service of either
telecommunication service or business support service. It cannot be said that
iron and steel articles are used for providing telecommunication service. It is
the immovable tower which is used for providing telecommunication service
or business support service.
18. Counsel argued that the CBEC by its Circular dated 04/1/2008
clarified that input of credit of service tax can be taken only if the output is a
service liable to Service Tax or goods liable to excise duty. Since immovable
property is neither service nor goods, no credit can be taken. Learned
counsel relied on the decision of the Supreme Court in Triveni Engineering
CEAC 12/2016 and other connected matter Page 18 of 67
& Indus Ltd. v Commissioner of Central Excise 2000 (120) ELT 273 (SC)
and submitted that the applicable test to determine if the asset was movable
or immovable was marketability. It was submitted that Triveni (supra),
highlighted the marketability of the goods: whether they can be taken to the
market and sold. Applied properly, to the facts of this case, it was apparent
that once the goods were fixed, there was no question of their marketability;
they attained the character of immovable property. Consequently, the
question of granting input credit did not arise.
19. It was argued that attachment of the towers to the foundation though
not comparable to something rooted in the earth it is equivalent to
entrenching in the earth of the plant as in the case of walls and buildings.
The functionality of the BTS equipment depends on the attachment of the
towers to the foundation and is comparable to imbedding of a wall in the
earth. Counsel submitted that the tower was not fastened merely to provide a
foundation but to provide stability to the plant and that the attachment is
permanent.
Analysis and Reasoning
Re Question No. 1: correctness of CESTAT`s findings that the towers,
shelters and accessories used by the Appellant for providing business
support services were immovable property
20. In the present case, the fundamental issue which needs to be decided is
whether the towers and shelters are movable or immovable property. In this
regard, it would be useful to refer to the relevant statutory provisions to
examine, what would constitute as moveable or immovable property. The
CEAC 12/2016 and other connected matter Page 19 of 67
expression "moveable property" has been defined in Section 3(36) of the
General Clauses Act, 1897 as under:
Section 3(36): "movable property" shall mean property of
every description, except immovable property.
21. It is obvious that the answer to the question whether the towers and
shelters in question are movable property, would depend upon whether they
are immovable property. That is because anything that is not immovable
property is by its definition "moveable" in nature. Section 3 of the Transfer
of Property Act, 1882 does not spell out an exhaustive definition of the
expression "immovable property". It simply provides that unless there is
something repugnant in the subject or context, `immovable property' under
the Transfer of Property Act, 1882 does not include standing timber,
growing crops or grass. Section 3(26) of the General Clauses Act, 1897,
similarly does not provide an exhaustive definition of the said expression. It
reads:
Section 3(26): "immovable property" shall include land,
benefits to arise out of land, and things attached to the earth, or
permanently fastened to anything attached to the earth ."
22. A plain a reading of Section 3 (26), shows that it defines "immovable
property" as things attached to the earth or permanently fastened to anything
attached to the earth. The term "attached to the earth" has not been defined
in the General Clauses Act, 1897. Section 3 of the Transfer of Property Act,
however, gives the following meaning to the expression "attached to the
earth":
(a) rooted in the earth, as in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of walls and buildings;
CEAC 12/2016 and other connected matter Page 20 of 67
(c) attached to what is so imbedded for the permanent beneficial
enjoyment of that to which it is attached.
23. The assessees relied on Commissioner of Central Excise, Ahmedabad
v. Solid and Correct Engineering Works & Ors 2010 (5) SCC 122. The
Supreme Court after taking into consideration a series of judgments like
Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad (1998) 1
SCC 400; Narne Tulaman Manufacturers Pvt. Ltd. Hyderabad v. Collector
of Central Excise, Hyderabad; 1989 (1) SCC 172; Quality Steel Tubes (P)
Ltd. v. CCE, U.P. 1995 (75) ELT 17 (SC) and Mittal Engineering Works (P)
Ltd. v. CCE, Meerut: 1996 (88) ELT 622 (SC) and after taking into account
the earlier view in the Triveni Engineering & Indus Ltd. v Commissioner of
Central Excise 2000 (120) ELT 273 (SC); finally concluded what is the
"permanency test" in the case of Solid and Correct Engineering (supra). In
Solid and Correct Engineering (supra), the court, after analyzing its previous
judgments, stated the controlling principle as follows:
33. It is noteworthy that in none of the cases relied upon by
the assessee referred to above was there any element of
installation of the machine for a given period of time as is the
position in the instant case. The machines in question were by
their very nature intended to be fixed permanently to the
structures which were embedded in the earth. The structures
were also custom made for the fixing of such machines without
which the same could not become functional. The machines
thus becoming a part and parcel of the structures in which they
were fitted were no longer moveable goods. It was in those
peculiar circumstances that the installation and erection of
machines at site were held to be by this Court, to be immovable
property that ceased to remain moveable or marketable as they
were at the time of their purchase. Once such a machine is
fixed, embedded or assimilated in a permanent structure, the
movable character of the machine becomes extinct. The same
CEAC 12/2016 and other connected matter Page 21 of 67
cannot thereafter be treated as moveable so as to be dutiable
under the Excise Act. But cases in which there is no
assimilation of the machine with the structure permanently,
would stand on a different footing. In the instant case all that
has been said by the assessee is that the machine is fixed by
nuts and bolts to a foundation not because the intention was to
permanently attach it to the earth but because a foundation was
necessary to provide a wobble free operation to the machine.
An attachment of this kind without the necessary intent of
making the same permanent cannot, in our opinion, constitute
permanent fixing, embedding or attachment in the sense that
would make the machine a part and parcel of the earth
permanently. In that view of the matter we see no difficulty in
holding that the plants in question were not immovable
property so as to be immune from the levy of excise duty.
24. The Supreme Court in Triveni Engineering (supra), held that the
marketability test requires that the goods as such should be in a position to
be taken to the market and sold. Therefore, the Solid and Correct
Engineering (supra) line of reasoning emphasizes that if functionality
depends upon embedment and assimilation, leading to extinction of movable
character, the property is immovable. Triveni Engineering (supra), on the
other hand, highlighted the marketability of the goods: whether they can be
taken to the market and sold. From the above finding, it follows that to be
taken to the market and sold, the turbo alternator has to be separated into its
components turbine and other alternator but then it would not remain
turbo alternator. Therefore, the court held that since turbo alternator gets
dismantled into steam turbine and alternator, the test of permanency fails.
25. In this case, the question that fell for consideration was whether a
turbo alternator comprising two components (i) steam turbine and (ii)
complete alternator and fixing the same on a platform brought about a new
CEAC 12/2016 and other connected matter Page 22 of 67
dutiable product. The court held that the process of fixing the same on a
platform and aligning them in a specified manner, was nothing but a
manufacturing process and a new commodity come into existence in the said
process. The machine so manufactured was, however, erected on a platform
specially constructed for that purpose which made the machine immovable
in character. The Court declared that while determining whether an article is
permanently fastened to anything attached to the earth, both the intention as
well as the factum of fastening has to be ascertained from the facts and
circumstances of each case. The following passage is apposite in this regard:
There can be no doubt that if an article is an immovable
property, it cannot be termed as "excisable goods" for purposes
of the Act. From a combined reading of the definition of
"immovable property" in Section 3 of the Transfer of Property
Act, Section 3(25) of the General Clauses Act, it is evident that
in an immovable property there is neither mobility nor
marketability as understood in the excise law. Whether an
article is permanently fastened to anything attached to the earth
requires determination of both the intention as well as the
factum of fastening to anything attached to the earth. And this
has to be ascertained from the facts and circumstances of each
case.
26. In Sirpur Paper Mills Ltd. (supra), the Supreme Court was dealing
with a situation similar to what is involved in the present case. The issue
there was whether the paper machine assembled at site mainly with the help
of components bought from the market was dutiable under the Excise Act.
The assessees argument was that as the machine was embedded in a
concrete base, it was immovable property though embedding was meant only
to provide a wobble free operation of the machine. Repelling that contention,
this Court held that just because the machine was attached to earth for a
CEAC 12/2016 and other connected matter Page 23 of 67
more efficient working and operation the same did not per se become
immovable property. The Court observed:
5. Apart from this finding of fact made by the Tribunal, the
point advanced on behalf of the appellant, that whatever is
embedded in earth must be treated as immovable property is
basically not sound. For example, a factory owner or a
householder may purchase a water pump and fix it on a cement
base for operational efficiency and also for security. That will
not make the water pump an item of immovable property. Some
of the components of the water pump may even be assembled on
site. That too will not make any difference to the principle. The
test is whether the paper-making machine can be sold in the
market. The Tribunal has found as a fact that it can be sold. In
view of that finding, we are unable to uphold the contention of
the appellant that the machine must be treated as a part of the
immovable property of the Company. Just because a plant and
machinery are fixed in the earth for better functioning, it does
not automatically become an immovable property.
27. In Narne Tulaman Manufacturers (supra), the Court examined
whether assembly of parts of a machine used by an assessee to bring into
existence a weighbridge as a complete machine amounted to "manufacture"
and liable to duty even when its parts are separately taxable. Answering the
question in affirmative, the Court held that the assembling of the components
of the weighbridge brought into existence a complete weighbridge which had
a distinctive name, character and use hence eligible to duty. The fact that the
assessee was himself manufacturing only one part of the component used in
the erection of a weighbridge did not mean that the complete machine once
the same was assembled by using duty paid parts was not eligible to excise
duty. In Solid and Correct Engineering (supra), the Supreme Court referred
to the English law, where the general rule is that what is annexed to the
CEAC 12/2016 and other connected matter Page 24 of 67
freehold becomes part of the realty under the maxim ,,quicquid plantatur
solo, solo credit. This maxim, does not however, apply in India. Even so,
the question whether a chattel is imbedded in the earth as to become
immovable property is decided on the same principles as those which
determine what constitutes an annexation to the land in English law. English
law evolved the twin tests of degree or mode of annexation and the object of
annexation. Reference was made to Wake v. Halt (1883) 8 App Cas 195
where, speaking for the Court of Appeal, Lord Blackburn stated:
The degree and nature of annexation is an important element
for consideration; for where a chattel is so annexed that it
cannot be removed without great damage to the land, it affords
a strong ground for thinking that it was intended to be annexed
in perpetuity to the land.
28. Here, the assessees submit that the distinction between Triveni
Engineering (supra) and the later judgment of Solid and Correct
Engineering (supra), that in Triveni (supra), the Supreme Court applied
dismantling of components and re-assembly as failing the permanency test.
20. Further, in the instant case, it is a common ground that a
turbo alternator comes into existence only when a steam
turbine and alternator with all their accessories are fixed at the
site and only then it is known by a name different from the
names of its components in the market. The Tribunal recorded
the finding that fixing of steam turbine and the alternator is
necessitated by the need to make them functionally effective to
reduce vibration and to minimise disturbance to the coupling
arrangements and other connections with the related
equipments. It also noted that removal of the machinery does
not involve any dismantling of the turbine and alternator in the
sense of pulling them down or taking them to pieces but only
undoing the foundation bolts arrangement by which they are
fixed to the platform and uncoupling of the two units and,
CEAC 12/2016 and other connected matter Page 25 of 67
therefore, the turbo alternator did not answer the test of
permanency laid down by this Court in the case of Municipal
Corporation of Greater Bombay (supra). In our view, the
findings recorded do not justify the conclusion of the Tribunal
inasmuch as on removal a turbo alternator gets dismantled into
its components - steam turbine and alternator. It appears that
the Tribunal did not keep in mind the distinction between a
turbo alternator and its components. Thus, in our view, the test
of permanency fails.
The Supreme Court, however, later, in Solid and Correct Engineering
(supra) concluded that any plant fixed by nuts and bolts to a foundation
involving no assimilation of the machinery with the structure permanently
and where the civil foundation was necessary to provide a wobble free
operation to the machine, the test of permanency fails.
29. Certain other decisions of the Supreme Court and High Courts were
relied on. In Vam Organics Chemicals Ltd 1989 (39) ELT 72, the assessee
used molasses to manufacture the dutiable final product. At the intermediate
stage, ethyl alcohol emerged which was a non-excisable product. The
Revenue contended that credit on inputs would have been allowed had ethyl
alcohol (intermediate product) been an excisable but exempted product. This
contention was rejected and credit was allowed. In Collector of Central
Excise v. Hindustan Saintaryware & Industries Ltd. 2002 (145) ELT 3 (SC),
it was held that plaster of Paris used in the making of moulds (exempt from
duty) was used as ,,input for the manufacture of sanitary ware (dutiable final
product). Aditya Cements Ltd. v. Union of India 2008 (221) ELI 362, a
decision of the Rajasthan High Court, considered whether the assessee was
entitled to avail the credit on materials used for laying railway track (which
is an immovable property emerging at intermediate stage) that was used for
CEAC 12/2016 and other connected matter Page 26 of 67
transporting of coal to the factory. The coal so transported was used for the
manufacture of dutiable final product. The High Court held that the assessee
was entitled to avail credit on material used in laying railway track materials.
Ispat Industries Limited v Commissioner of Central Excise 2006 (195) ELT
164, was a case where the High Court allowed credit of duty paid on angles,
channels, plates, etc. which were used in erection, installation and
commissioning of the machinery (immovable). The Revenues appeal
against this judgment was rejected by order dated 19.07.2007 in Central
Excise Appeal No.187 of 2006, by the Supreme Court. In Lloyds Steel
Industries v Commissioner of Central Excise 2004 (64) RLT 732, the High
Court allowed credit of cement and steel used for construction of foundation
that were not excisable goods. The Revenues appeal against the judgment
was dismissed. Commissioner of Central Excise v. ICL Sugars Limited 2011
(271) ELT 360 (Kar.) was a Karnataka High Court decision, rejecting the
Revenues appeal holding that plates, etc. used for fabrication and
installation of a storage tank would be admissible for credit. The Revenues
sole contention to deny credit was that the storage tank was an immovable
property and once erected to the earth becomes non-excisable. Negating this
contention, the High Court allowed the credit.
30. The Revenue contends that the towers and shelters are not per se
immovable property but transform and become immovable as they are
permanently imbedded in earth in as much as they are fixed to a foundation
imbedded in earth. This argument has to be considered in the light of the
decisions discussed above. Attachment of the towers in question with the
help of nuts and bolts to a foundation (not more than one foot deep),
intended to provide stability to the working of the towers and prevent
CEAC 12/2016 and other connected matter Page 27 of 67
vibration/wobble free operation does not does not per se qualify its
description as attached to the earth in any one of the three clauses (of
Section 3 which defines "attached to the earth") extracted above. Clearly,
attachment of the towers to the foundation is not comparable or synonymous
to trees and shrubs rooted in earth. It is also not equivalent to entrenching in
the earth of the plant as in the case of walls and buildings, for the obvious
reason that a building imbedded in the earth is permanent and cannot be
detached without demolition. Imbedding of a wall in the earth is not
comparable to attachment of a tower to a foundation meant only to provide
stability to the plant especially because the attachment is not permanent and
what is attached can be easily detached from the foundation. So also,
attachment of the tower to the foundation on which it rests would not fall in
the third category (attached to what is so imbedded for the permanent
beneficial enjoyment of that to which it is attached), for an attachment to fall
in that category it must be for permanent beneficial enjoyment of that to
which the tower is attached.
31. The Revenue had relied on a decision of the Bombay High Court in
the case of Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune III
2014 (35) STR 865, Vodafone India Ltd. v. Commissioner of Central Excise,
Mumbai 2015 (40) STR 422 (Bom) and State of AP v. Bharat Sanchar
Nigam Ltd.2012 (25) STR 321. In Bharti Airtel Ltd. (supra), the court was of
the view that to provide telecommunication service, CENVAT credit on
towers, pre-fabricated shelters and their accessories cannot be availed as the
towers are affixed to the earth and became immovable property and ipso
facto, non-marketable and non-excisable. In the Bharat Sanchar Nigam Ltd
(supra), the issue was regarding validity of levy of sales tax, under the
CEAC 12/2016 and other connected matter Page 28 of 67
provisions of the A.P. VAT Act, 2005, inter-alia, on sharing of telecom
infrastructure. On facts, some telecom companies erected towers in sites and
permitted other similar service providers to fix their antennas on the towers
and thus share the infrastructure, for which a monthly infrastructure share fee
was received, towards consideration. The court concluded that since
telecommunication towers of a height of around 90 meters are embedded
either to the earth or to a building rooftop and fastening of such huge
structure was necessary, they were excluded from the ambit of "goods" and
constituted "immovable property" and that since transfer of right of the right
to use immovable property does not fall within the scope of the VAT Act,
there was no tax liability. The court did refer to the decision of the Supreme
Court Solid & Correct Engineering (supra), on the test of permanency and
whether the chattel is capable of being moved to another place of use in the
same position, or is liable to be dismantled or re-erected at a later place.
However, the High Court concluded that 90 meters huge towers can be
placed or erected at another place only after being completely dismantled at
the existing site and cannot be moved to another place of use in the same
position.
32. In Vodafone India Limited (supra), the Bombay High court held that
towers and shelters purchased by the assessee for providing
telecommunication service to be immovable property and hence, the assessee
was not entitled to the credit of duty paid on them. It in effect followed its
previous decision in Bharti Airtel Ltd (supra), and held so:
14. On carefully going through the decision in Bharti Airtel's
case we find that the said decision squarely applies to the case
of the Appellant before us. We find that this Court has
considered all aspects of the matter and then come to the
CEAC 12/2016 and other connected matter Page 29 of 67
conclusions that it did. Mr. Salve, despite all the finesse at his
command, was unable to persuade us to hold that the decision
in Bharti Airtel's case requires a relook. The very provisions
that were relied upon by Mr. Salve, were considered and
interpreted by the Division Bench in Bharti Airtel's case. Not
only are those findings binding on us but we are in full
agreement with the same. Once the very rules that have been
relied upon by Mr. Salve, are interpreted by the Division Bench
of this Court, judicial discipline demands that this
interpretation be followed by us. It is now quite well settled that
an interpretation of a statutory provision, and equally a
misinterpretation, by one Bench of the High Court would be
binding on a coordinate Bench of that very High Court. The
subsequent Bench cannot come to the opinion that a particular
provision was misinterpreted and under that pretext seek to
reinterpret it again. If the subsequent Bench is of the view that
the statutory provisions are misconstrued and / or
misinterpreted, the only recourse available to it would be to
refer it to a larger Bench. In the present case, we see no reason
to adopt this course of action. We are in full agreement with the
reasoning given in Bharti Airtel's case and therefore, are
unable to accept the submissions of Mr. Salve that the aforesaid
decision requires a relook.
33. The assessees arguments were that the decisions of the A.P. High
Court in the BSNL (supra), the Bombay High Court in Bharti Airtel Limited
(supra) and in Vodafone India Limited (supra), incorrectly appreciated and
applied the ratio regarding the character of towers and shelters as not
amounting to immovable property, deducible from the judgment in Solid and
Correct Engineering (supra). The assessees submitted that CESTAT erred
in relying on the judgment of the AP High Court in the BSNL (supra). That
judgment was concerned with a sales tax issue, i.e. whether there was a
transfer of right to use towers to construe the transaction as a deemed sale,
and not input credit admissibility in the context of service tax . While holding
CEAC 12/2016 and other connected matter Page 30 of 67
that possession and control is only with the telecom operators and therefore,
there is no resultant transfer of right to use, the Court in the process also
decided immovability. The High Court had not addressed the factual position
whether the towers and shelters were movable. It applied the decision in the
case of Triveni (supra), which had already been considered, in the Solid and
Correct Engineering (supra) ruling. Further, it is pertinent to note that the
AP High Court in the case of Commissioner of Central Excise,
Vishakapatnam II vs. Sai Sahmita Storages (P) Ltd. 2011 (23) STR 341
(AP) in deciding for eligibility of CENVAT credit with respect to output
service was extended the credit on cement and TMT bars used to construct
warehouses which is undoubtedly an immovable property.
34. The assessees also rely on a circular of the Central Board of Excise
and Customs (CBEC) No. 137/315/2007 CX.4 dated 26.02.2008. This
circular clarified eligibility to CENVAT credit on towers and shelters and
clearly narrated that the inputs or raw materials involved in the process of
setting up of towers become immovable structure. The first two paragraphs
of the Circular are extracted below:
it has been brought to the notice of the Board that telecom
operators are availing CENVAT credit on goods like angels,
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 stes and other equipments. It
appears that the telecom operators claim these items to be
inputs` for providing telecom services.
2. The issue has been examined; the items mentioned above are
used for erecting towers, and making housing/ storage units.
Thus, there 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,
CEAC 12/2016 and other connected matter Page 31 of 67
beams, etc., are this inputs for civil structures and as such, are
not used for providing taxable service. Therefore, it is
considered view of the Board that credit of duty paid on such
items is not available to the telecom service providers.
35. The circular was an offshoot of the decision of the Bombay High
Court in Hutchison Max Telecom P. Ltd. 2008 (224) ELT 191 (Bom) where
the Triveni (supra) immovability test was followed. The assessee contended
that the Revenue during the hearing before the CESTAT did not dispute that
the towers and shelters are merely bolted or fastened. The foundation is
necessary only to make a wobble free operation (stability) of the equipment
and there is no assimilation of the machine with the structure permanently.
36. In view of this court, in the facts of the present case, the permanency
test has to be applied, in the context of various objective factors and cannot
be confined or pigeonholed to one single test. In the present case, the entire
tower and shelter is fabricated in the factories of the respective
manufacturers and these are supplied in CKD condition. They are merely
fastened to the civil foundation to make it wobble free and ensure stability.
They can be unbolted and reassembled without any damage in a new
location. The detailed affidavit filed by the assessees demonstrate that
installation or assembly of towers and shelters is based on a rudimentary
"screwdriver" technology. They can be bolted and unbolted, assembled and
re-assembled, located and re-located without any damage and the fastening
to the earth is only to provide stability and make them wobble and vibration
free; devoid of intent to annex it to the earth permanently for the beneficial
enjoyment of the land of the owner. The assessees have also placed on record
the copies of the leave and license agreements, making it clear that the
CEAC 12/2016 and other connected matter Page 32 of 67
licensee has the right to add or remove the aforesaid appliances, apparatus,
equipment etc.
37. On an application of the above tests to the cases at hand, this court
sees no difficulty in holding that the manufacture of the plants in question do
not constitute annexation and hence cannot be termed as immovable property
for the following reasons:
(i) The plants in question are not per se immovable property.
(ii) Such plants cannot be said to be "attached to the earth" within the
meaning of that expression as defined in Section 3 of the Transfer of
Property Act.
(iii) The fixing of the plants to a foundation is meant only to give
stability to the plant and keep its operation vibration free.
(iv) The setting up of the plant itself is not intended to be permanent at
a given place. The plant can be moved and is indeed moved after the
road construction or repair project for which it is set up is completed.
38. A machine or apparatus annexed to the earth without its assimilation
by fixing with nuts and bolts on a foundation to provide for stability and
wobble free operation cannot be said to be one permanently attached to the
earth and therefore, would not constitute an immovable property. Thus, the
tribunal erred in relying on the Bombay High Court in Bharti Airtel Ltd
(supra). It is also important to understand that when the matter was carried
out in the Bombay High Court and the judgment was delivered, the whole
case proceeded on the presumption that these are immovable properties. The
tribunal failed to appreciate the ,,permanency test as laid down by the
Supreme Court in Solid and Correct Engineering (supra).
CEAC 12/2016 and other connected matter Page 33 of 67
Re Question No. 2 i.e. whether the assessees are entitled to claim CENVAT
Credit on the towers, shelter either as capital goods or inputs in terms of
Rule 2 (a) or 2 (k) of the CCR, 2004 and Whether towers and shelters would
qualify as accessories?
39. The assessees contend that the tribunal failed to appreciate that the
towers, MS Angles, Channels, etc. cleared as a set of CKD towers, and pre-
fabricated shelters, are "capital goods" as defined in Rule 2(a) of the Credit
Rules. It was argued that the items in question, towers and shelters are
accessories supporting the BTS falling under HSN 8517. BTS falling under
HSN 8517 is an identified capital good under Rule 2(a). It is stated that
consequently accessories in support of HSN 8517 would qualify for capital
goods credit per se. In this regard, the reliance is placed on India Cements
Ltd. v. Commissioner of Central Excise, Trichy-I 2013 (297) ELT 508
(Madras) where the court, inter alia, observed after referring to the board
circular 276/110/96 dated 02.12.1996, held that the benefit of the Modvat
credit under Rule 57Q would be applicable to all components, spares and
accessories of the specified goods, irrespective of their classification under
any chapter heading. The relevant portion of the judgment reads as follows:
13. Going by the liberal meaning given to Clause (d) in
Rule57Q that the position prior to 23-7-1996 when Credit was
available for components, spares and accessories irrespective
of the classification of specified Capital Goods, we have no
hesitation in accepting the case of the assessee. Quite apart,
even going by the circular, we agree with the argument
advanced by the learned counsel for the assessee that the
amendment under Notification No. 25/96, dated 31-8-1996 has
to be read only as clarificatory and retrospective effect has to
be given for availing Modvat Credit. In view of this reasoning,
we find that Capital Goods itself were eligible for Modvat
Credit under Rule 57Q.
CEAC 12/2016 and other connected matter Page 34 of 67
14. Thus, in the light of the decision of this court following the
Apex Court decision and in the background of the circular
issued by the Government of India dated 2-12-1996 that the
benefit of Modvat Credit under Rule 57Q would be applicable
to all components, spares and accessories of the specified
goods, irrespective of their classification under any chapter
heading, we have no hesitation in granting the relief in favour
of the assessee, thereby the order of the Customs, Excise and
Service tax Appellate Tribunal is set aside. Consequently, the
Civil Miscellaneous Appeal is allowed. No costs.
40. Reliance is also placed on the decision of the Supreme Court in State
of Punjab & Ors. v. Nokia India Private Ltd. 2015 (315) ELT 162 (SC),
where it was held that:
"16. The Assessing Authority, Appellate Authority and the
Tribunal rightly held that the battery charger is not a part of
the mobile/cell phone. If the charger was a part of cell phone,
then cell phone could not have been operated without using the
battery charger. But in reality, it is not required at the time of
operation. Further. the battery in the cell phone can be charged
directly from the other means also like laptop without
employing the battery charger. implying thereby, that it is
nothing but an accessory to the mobile phone. The Tribunal
noticed that as per the information available on the website of
Nokia/ the Company has invariably put the mobile battery
charger in the category of an accessory which means that in the
common parlance also/ the mobile battery charger is
understood as an accessory. It has also been noticed by the
Tribunal that a Nokia make battery charger is compatible to
many models of Nokia mobile phones and also many models of
Nokia make battery chargers which are compatible to a
particular model of Nokia mobile phone/ imparting various
levels of effectiveness and convenience to the users. "
"17 ...The word 'accessory' as defined in the Webster's
Comprehensive Dictionary (International) Volume-I is defined
as: ''a person or thing that aids subordinately/ an adjunct/
appurtenance/ accompaniment (2) such items of apparel as
CEAC 12/2016 and other connected matter Page 35 of 67
complete an outfit, as gloves/ a scert hat or handbag.(3) A
person who/ even if not present, is concerned, either before or
other in the perpetration of a felony below the crime of treason.
Adj.(l) Aiding the principal design/ or assisting subordinately
the chief event, as in the commission of a crime. (2)
contributory/ supplemental/ additional: accessory nerves".
18. In M/s. Annapurna Carbon Industries Co. vs. State of
Andhra Pradesh/ (1976) 2 SCC 273/ this Court while
examining the question whether ':4rc Carbon" is an accessory
to cinema projectors or whether comes under other
cinematography equipment under Entry 4 of Schedule I to the
A.P. General Sales Tax Act 1950 defined accessories as: "an
object or device that is not essential in itself but that adds to the
beauty/ convenience or effectiveness of something else".
19. In view of the aforesaid facts/ we find that the Assessing
Authority, Appellate Authority and the Tribunal rightly held
that the mobile/cell phone charger is an accessory to cell phone
and is not a part of the cell phone. We further hold that the
battery charger cannot be held to be a composite part of the
cell phone but is an independent product which can be sold
separately, without selling the cell phone. The High Court
failed to appreciate the aforesaid fact and wrongly held that the
battery charger is a part of the cell phone."
41. The assessees had also relied on Collector of Central Excise v MICO
2003 (152) ELT 36 (SC), where the Supreme Court held that part of a part is
also part of a whole and, therefore, part of nozzle and nozzle holder would
be eligible for exemption. Annapurna Carbon Industries Company v. State of
A.P. 1976 37 STC 378 too was cited; there the court accepted the meaning of
accessories as an object or device that is not essential in itself but that adds
to the beauty or convenience or effectiveness of something else or is
supplementary or secondary to something or greater or primary importance,
which assists in operating or controlling or may serve as aid or accessories .
Likewise, Collector of Central Excise v. Hyundai Unitech Electrical
CEAC 12/2016 and other connected matter Page 36 of 67
Transmission Ltd. & Anr 2015 (323) E.L.T. 220(S.C.) was relied on; it was
held that as windmill doors and tower doors are safety devices used as
security for high voltage equipment fitted inside the tower for preventing
unauthorized access, it would be sufficient to make them part of the
electricity generator. Further, the court held that since the tower is held as a
part of the generator, door thereof has to be necessarily a part of the
generator. The assessees urged that the ratio in the said judgment would
apply squarely to the facts of the present case as towers of windmill
generator stand on a similar footing to the towers being used by the
Appellants in the present case. Both are required to keep the equipment at
the desired altitude for their respective effective use. Therefore, applying the
ratio in Hyundai Unitech (supra), the towers should be held as part of the
antenna and BTS. Another decision relied on was Pragati Silicons (P) Ltd.
VS. Commissioner of Central Excise, Delhi (2007) 9 SCC 470 which held
that an "accessory" definitionally is something supplementary or subordinate
in nature and need not be essential for the actual functioning of the product;
similarly Commissioner of Central Excise, Delhi v. Insulation Electrical
Private Limited (2008) 12 SCC 45, held that items manufactured can be
adjuncts, merely to improve the efficiency and convenience of seats and do
not form the seat and are accessories.
42. The Revenue has contended that these shelters and accessories do not
fall within the list of notified items under the capital goods scheme, towers
and shelters would not qualify as capital goods. The counsel for the Revenue
relied on the decision of the Bombay High court. The Bombay High Court in
the case of Bharti Airtel (supra) held that towers and shelters could not be
CEAC 12/2016 and other connected matter Page 37 of 67
parts and accessories under the capital goods scheme. The relevant para is
extracted hereunder for reference:
"33. The alternative contention of the appellant is that tower is
an accessory of antenna and that without towers antennas
cannot be installed and as such the antennas cannot function
and hence the tower should be treated as parts and components
of the antenna. It is urged that antennas fall under chapter 85
of the schedule to the Central Excise Tariff Act and hence being
capital goods used for providing cellular service falling under
rule 2(a)(A)(iii) as part of capital goods falling under rule
2(a)(A)(i) towers become accessories of antenna and should be
held as capital goods for availing of credit of duty paid. The
argument at the first blush appeared to be attractive however a
deeper scrutiny shows that the same is without substance. It
would be misconceived and absurd to accept that tower is a
part of antenna. An accessory or a part of any goods would
necessarily mean such accessory or part which would be
utilized to make the goods a finished product or such articles
which would go into the composition of another article. The
towers are structures fastened to the earth on which the
antennas are installed and hence cannot be considered to be an
accessory or part of the antenna. The position in this regard
stands fortified from the decision of the Supreme Court in the
case of "Saraswati Sugar Mills vs. CCE Delhi, 2011 (270) ELT
465)". From the definition of the term 'input' as defined in 2 (k)
of the Credit rules it is clear that the Appellant is a service
provider and not a manufacturer of capital goods. A close
scrutiny of the definition of the term capital goods and input
indicates that only those goods as used by a manufacturer
would qualify for credit of the duty paid. As observed
hereinabove a service provider like the appellant can avail of
the credit of the duty paid only if the goods fall within the ambit
of the definition of capital goods as defined under Rule 2(a)(A)
of the Credit Rules. The contention of the appellant that they
are entitled for the credit of the duty paid towers and PFB and
printers is defeated by the very wording of the definition of
input. In any case towers and PFB are in the nature of
CEAC 12/2016 and other connected matter Page 38 of 67
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.
43. In the present case, the debate mainly centers round the definition of
'capital goods' in clause (a) of Rule 2 of the Credit Rules. The definition of
'input' in clause (k) of the said Rule also cropped up, at times, in connection
with the appellant's alternative claim of CENVAT credit on certain items as
inputs. Both the definitions as they stood in the period of dispute are
reproduced below: --
(a)"capital goods" means: --
(A) the following goods, namely: --
(i) all goods falling under Chapter 82, Chapter 84, Chapter
85, Chapter 90, heading 6805, grinding wheels and the like,
and parts thereof falling under heading 6804 of the First
Schedule to the Central Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods
specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
used--
(1) in the factory of the manufacturer of the final products,
but does not include any equipment or appliance used in an
office; or
(2) for providing output service,
(B) motor vehicle registered in the name of provider of output
service for providing taxable service as specified in sub-
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clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105)
of section 65 of the Finance Act;
(k) "input" means--
(i) all goods, except light diesel oil, high speed
diesel oil and motor spirit, commonly known as
petrol, used in or in relation to the manufacture
of final products whether directly or indirectly
and whether contained in the final product or
not and includes lubricating oils, greases,
cutting oils, coolants, accessories of the final
products cleared along with the final product,
goods used as paint, or as packing material, or
as fuel, or for generation of electricity or steam
used in or in relation to manufacture of final
products or for any other purpose, within the
factory of production;
(ii) 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.
Explanation 1.--The light diesel oil, high speed diesel oil or
motor spirit, commonly known as petrol, shall not be treated
as an input for any purpose whatsoever.
Explanation 2.--Input include goods used in the manufacture
of capital goods which are further used in the factory of the
manufacturer;
"Explanation 2 was amended by Notification No. 16/2009 -
CE(NT) dt. 07/07/2009. The amended text, which has been
referred to by both sides, reads as follows:
Explanation 2.--Input include goods used in the manufacture
of capital goods which are further used in the factory of the
manufacturer but shall not include cement, angles, channels.
CEAC 12/2016 and other connected matter Page 40 of 67
Centrally Twisted Deform (CTD) bar or Thermo-
Mechanically Treated (TMT) bar and other items used for
construction of factory shed, building or laying of foundation
or making of structures for support of capital goods.
44. From the above definition, clearly for goods to be termed "cap ital
goods", in the present set of facts, should fulfil the following conditions:
1. They must fall, inter alia, under Chapter 85 of the first schedule to the
CET or must be component, parts or spares of such goods falling
under chapter 85 of the first schedule to the Central Excise Tariff Act
(CET); and
2. Must be used for providing output service.
45. Accordingly, all components, spares and accessories of such capital
goods falling under chapter 85, would also be treated as Capital goods. Now,
given that CENVAT credit is available to accessories, it is important to
address whether towers and shelters would qualify as "accessories". Blacks
Law dictionary, (fifth edition), defines "accessory" as:
"anything which is joined to another thing as an ornament or to
render it more perfect, or which accompanies it, or is
connected with it as an incident, or as sub-ordinate to it, or
which belongs to or with it. adjunct or accompaniment. A thing
of subordinate importance. Aiding or contributing in secondary
way of assisting in or contributing to as a subordinate.
46. On the basis of the above analysis, it is apparent that the primary test
to qualify as an accessory is whether does the item in question adds to the
beauty, convenience or effectiveness of something else. An accessory is an
article or device that adds to the convenience or effectiveness of but is not
essential to the main machinery. It was highlighted during the hearing of the
appeals that the towers are structures installed to support GSM and
microwave antennae. These antennae receive and transmit signals and are
CEAC 12/2016 and other connected matter Page 41 of 67
used for providing output service. Without them, the antennae cannot be
installed high above the ground and cannot receive or transmit signals.
Therefore, the towers too have to be considered as essential component/ part
of the capital goods, namely BST and antennae. Further, BTS is an
integrated system and each component in the BTS, have to work in tandem
to provide cellular connectivity to phone users and to provide efficient
services. In the facts of the present case, it is evident that the towers form
part of the active infrastructure as the antennae cannot be placed at that
altitude to generate uninterrupted frequency. Further, these shelters are
accessories for the placement of various BTS equipment and other items for
it to remain in a dust free, ambient temperature.
47. From the foregoing discussion, clearly towers and shelters support the
BTS in effective transmission of the mobile signals and therefore, enhance
their efficiency. The towers and shelters plainly act as components/ parts and
in alternative as accessory to the BTS and would are covered by the
definition of "capital goods".
48. In the present cases, the tribunal, in this courts view erred in
interpreting the definition of "capital goods". It merely adopted the ratio laid
down by the Bombay High Court in the case of the Bharti Airtel (supra), and
Vodafone India (supra). Both those are subject matter of appeals before the
Supreme Court. This court is of the opinion, with due respect to the Bombay
High Court that those two judgments are contrary to settled judicial
precedents, including the later view of the Supreme Court in Solid and
Correct Engineering (supra). In this conclusion, it is held that the tribunal
clearly erred in concluding that the towers and parts thereof and the pre-
fabricated shelters are not Capital Goods with the meaning of Rule 2(a) of
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the Credit Rules. This question is answered in favour of the assessee and
against the Revenue.
49. The allied question is alternatively, whether towers and shelters would
qualify as "inputs" under Rule 2(k) of the Credit Rules. The assessees had
urged that the tower (and parts thereof) and the pre-fabricated shelters would
also qualify as 'inputs' used for providing output service. This contention is
based on sub-clause (ii) of clause (k) of Rule 2 (definition of "input") of the
Credit Rules. They rely on Godfrey Phillips India Ltd. v. Union of India
1990 (48) ELT 508, where the term ,,input was interpreted and the court
held as follows:
"All that the company then seeks is relief or credit qua duty
already once and earlier paid on Tariff Item No. 68 goods
going into the manufactured product which is finally rendered
marketable to the consumer. In all such circumstances. the
word 'Inputs' (with which word the authorities seem to have
been overwhelmed) in the 1979 notification cannot have the
effect of superseding and setting at naught the entire relevant
earlier recital preceding thereto. The word 'Inputs' is only a
cryptic abbreviated form not meant to change and alter the
meaning and intention of the substantive and the really relevant
part of the notification but only indicative thereof. The
interpretation put by the authorities on the said word is too
narrow and technical defeating the very object of the
notification and running counter thereto. Reading the said
notification as a whole/ it is obvious and clear that a much
wider meaning to the word inputs' is intended. It is not used as
the grammatical equivalent of or otherwise synonymous with
the word 'ingredients; The effort to equate the two would render
the notification to a great extent infructuous and nugatory.
Indeed, the notification itself clarifies the word (Inputs) to
mean:"...any goods falling under Item No. 68."
CEAC 12/2016 and other connected matter Page 43 of 67
The sum and substance is to enable manufacturers to. claim
credit for all Tariff Item 68 goods that go into the manufactured
product and on which product full duty is being paid.
50. It was submitted that the definition of ,,input is but an abbreviation
and whatever is used for providing output service, would be an input. The
assessee submitted that it is impossible to provide the telephone services,
without the tower. Further, pre-fabricated shelters and panels are used for the
installation of transmission devices, DG sets and other electronic
instruments. It was further, argued that a reading of the rule, made out a clear
distinction between the inputs used in the manufacture of excisable goods
and the inputs used for providing output service. While, in the case of
manufacturing activity, for the goods to qualify as "input" within the
meaning of Rule 2(k) of the Credit Rules, they had to be "used in" or
"relation to to the manufacturing activity. In the case of service, the goods
only need to be "used for" providing the output service, and the definition
does not stipulate that the goods should be used in or consumed in the
provision of the Output service. The assessees relied on Indian Chamber of
Commerce v Commissioner of Income Tax, WB AIR 1976 SC 348, while
interpreting the term ,,for it was held that:
"For used with the active participle of a verb means 'for the
purpose of (See judgment of Westbury C, 1127). 'For' has many
shades of meaning. It connotes the end with reference to which
anything is done. It also bears the sense of appropriate' or
'adapted to'; 'suitable to purpose- vide Black's Legal
Dictionary"
51. It was highlighted that in the Larger Bench decision in Union Carbide
India Ltd. v. CCE, Calcutta I 1996 (86) ELT 613 (Tribunal), the tribunal
CEAC 12/2016 and other connected matter Page 44 of 67
considered spare parts of machines to be eligible for credit as inputs under
Modvat scheme. Tata Engineering & Locomotive Co. ltd. v. CCE, Pune
1994 (70) ELT 70 (Tribunal), too held that credit on the machines which are
excluded is available under input category. In Oblum Electrical Industries
Pvt. Ltd. v. Collector of Customs, 1997 (94) ELT 449 (SC), it was held as
under:
"In the notification two different expressions have been used
namely, 'materials required to be imported for the purpose of
manufacture of products' and 'replenishment of materials used
in the manufacture of resultant products' which indicates that
the two expressions have not been used in the same sense. The
expression 'materials required to be imported for the purpose of
manufacture of products' cannot be construed as referring only
to materials which are used in the manufacture of the products.
The said exemption must be given its natural meaning to
include materials that are required in order to manufacture the
resultant products. On that view, the exemption cannot be
confined to materials which are actually used in the
manufacture of the resultant product but would also include
materials which though not used in the manufacture of the
resultant product are required in order to manufacture the
resultant product. Crystal beams imported by the appellant are
materials, which though not used in the manufacture of H. T.
Porcelain Insulators required for Lightening Arrestors, are
materials which are required for producing the insulators in the
kilns
52. In Industrial Machinery Manufacturers Pvt. Ltd. v. The State of
Gujarat (1965) 16 STC 380, where the Gujarat High Court held that the
humidifiers used in order to maintain certain humidity for the purpose of
increasing the strength of the yarn, thus avoiding breakages and improving
the quality of the yarn, should be regarded as machinery 'used in the
manufacture of goods and that it was not necessary to show that it was used
CEAC 12/2016 and other connected matter Page 45 of 67
in the actual process of manufacture was also cited. GTL Infrastructure Ltd.
v CST, Mumbai in 2015 (37) STR 577 (Tri- Mumbai), which held that
towers would qualify as Inputs for the passive infrastructure provider too
was relied on. The assessees submitted that towers remain same both for
them as well as passive infrastructure providers and when they are
considered as 'inputs' for passive infrastructure providers, the same treatment
ought to be given to the assessees, who too provide passive infrastructure
support to other telecommunication service providers. The other judgment
relied on was of the Supreme Court in the case of Member, Board of
Revenue, West Bengal v. M/s. Phelps & Co. (P) Ltd., 1972 4 SCC 121,
wherein the court by applying the commercial expediency test, allowed the
credit of the gloves used by workmen engaged in handling corrosive
substances in the course of manufacture. In J.K. Cotton Cotton Spinning and
Weaving Mills Co. Ltd. v. Sales tax Officer, Kanpur 1997 (91) ELT 34 (SC),
it was held that if a process or activity is so integrally related to the ultimate
manufacture of goods so that without that process or activity manufacture
may, even if theoretically possible, by commercially inexpedient, goods
intended for use in the process or activity will qualify for credit, was relied.
The court had in that case observed that:
"The expression ''in the manufacture of goods" should normally
encompass the entire process carried on by the dealer of
converting raw materials into finished goods. Where any
particular process is so integrally connected with the ultimate
production of goods that but for that process, manufacture or
processing of goods would be commercially inexpedient, goods
required in that process would, in our judgment, fall within the
expression "in the manufacture of goods"
CEAC 12/2016 and other connected matter Page 46 of 67
53. On examination of the definition and the decisions, the court is of the
considered opinion that the term "all goods" mentioned in Rule 2(k) of the
Credit Rules would cover all the goods used for providing Output Services,
except those which are specifically excluded in the said Rule. Therefore, the
definition is wide enough to bring all goods which are used for providing
any output service. Further, from the decisions of the Supreme Court and
other judgments referred to previously, the test applicable for determining
whether inputs are used in the manufacture of goods is the ,,functional utility
test. If an item is required for providing out the output services of the service
provider on a commercial scale, it satisfies the functional utility test. In the
facts of the present case, what emerges is that, BTS is an integrated system
and each of its components have to work in tandem with each other in order
to provide the required connectivity for cellular phone users and for efficient
telecommunication services. The towers and pre-fabricated shelters form an
essential in the provision of telecommunication service. The CESTAT in
the opinion of this court- failed to appreciate that it is well settled that the
work "used" should be understood in a wide sense, so as to include passive
as well as active use. The towers in CKD condition are used for the purpose
of supplying the service and therefore, would qualify as ,,inputs. There is
actual use of the tower and shelters in conjunction with the Antenna and the
BTS equipment in providing the output service, which also includes
provision of the Business Support Service. The CESTAT has failed to
appreciate that the towers and the parts thereon and the pre-fabricated
shelters are inputs, in accordance with the provisions of Rule 2(k) of the
Credit Rules. The CESTAT has erred in holding that there is no nexus
between the inputs and the output service. The CESTAT also failed to
CEAC 12/2016 and other connected matter Page 47 of 67
consider the decision of the AP High Court in the case of the M/s Indus
Towers Ltd. v. CTO, Hyderabad (2012) 52 VSR 447,which clearly ruled that
the towers and shelters are indeed used and are integrally connected to the
rendition of the telecommunication services.
Re Question No. 3: whether the CESTAT erred in applying the nexus test
with reference to MS angles and Channels, whereas according to the
Appellant what was bought to the site were towers, shelters and accessories
in CKD/SKD conditions for providing services?
54. The assessees claimed that duty was paid on MS Angles and channels
and they were entitled to duty credit, which was not allowed by the Revenue.
Now, the basic requirement for eligibility of any duty credit is that the goods
on which duty is paid (credit of which is claimed) should have a connection
or nexus for discharging tax on output service. The credit availed on input is
used for discharging tax on output service. In the present case, the duty paid
MS angles, channels etc. are used in the fabrication of towers on a concrete
platform. However, they are directly not involved in the provision of the
telecommunication service. But inputs like MS angles and channels have
gone into the making of such towers which in turn are used for providing
infra-support service/ telecom service. In the present case, the duty paid
items are MS Angles and Channels/ shelters brought to the site are installed/
erected and further put to use for mounting/ installing telecommunication
antenna and other equipment. The assessees complained that their
transactions do not involve purchase of angles, channels and beams for
construction of towers at site. The entire tower and shelter are fabricated in
the factories of the respective manufacturers and these are supplied in CKD
condition. These are merely fastened to the civil foundation to make it
CEAC 12/2016 and other connected matter Page 48 of 67
wobble free and can be unbolted and reassembled without any damage in a
new location. The assessees rely on Hyundai Unitech (supra) where the
Supreme Court held that doors and electrical boxes are components and/or
parts of wind operated electricity generators.
55. The Revenue contends that the MS Angles and channels used for
assembling towers and shelters do not fall in the definition of 2(a) i.e. capital
goods. It was argued that the definition of capital goods in Rule 2(A)(a)
includes all goods falling under Chapter 82, 85, Chapter 90, of the first
schedule of the CETA. In this context, it was submitted that the items in
dispute are articles of iron and steel which falls under the Chapter 73 and
therefore, do not qualify under the definition of capital goods for grant of
CENVAT credit. Further, it was submitted that the items in dispute have
been purchased/ invoiced under Chapter 73 and therefore, cannot be held to
be capital goods.
56. The inputs such as MS Angles and channels are used for the providing
infra-support service/ telecom service. To apply the term "used for" in the
definition of inputs, there should be a nexus between the inputs goods and
the output service. In the opinion of this court, clearly goods in question
have gone into the making of such towers which in turn are used for
providing infra-support service/ telecom service. It is therefore, held that the
CESTAT erred in applying the nexus test and therefore, credit has to be
extended to the duty paid MS angles and channels.
Re. Question No. 4:i.e whether the Appellant was justified in terms of Rule
4(1) of the CCR, 2004, in claiming CENVAT Credit of excise duty paid by
the manufacturer of towers and shelters after receipt of such towers and
shelters at their premises (i.e. tower site)
CEAC 12/2016 and other connected matter Page 49 of 67
57. In the present case, the CESTAT denied CENVAT credit on the
ground that on installation, the towers and shelters and parts thereof become
immovable property and therefore, are not entitled for CENVAT credit as
"inputs". The Tribunal followed the decision of the Bombay High Court in
the case of Vodafone India Ltd. (supra) and Bharti Airtel (supra). While
holding that CENVAT Credit was inadmissible, CESTAT also relied on the
decision of the Larger Bench in the case of Vandana Global Ltd. v. CCE,
Raipur, 2010 (253) ELT 440.The assessees urge that the towers, shelters and
parts thereof were received in CKD condition and at the time of their receipt,
they were movable goods. Therefore, the assessees are eligible to take
CENVAT credit. It is argued that the definition of ,,input service under Rule
2(l) is much wider than the definition of ,,inputs under Rule 2(k) of the
Credit Rules. Further, in terms of Rule 3 (of the Credit Rules) the assessees
assert eligibility to CENVAT credit of the duty paid on all inputs and capital
goods which are required for providing the output service.
58. Rule 4(1) of the Credit Rules prescribes the conditions/timing of
availing CENVAT credit and allows credit on inputs after receipt in the
premises of the output service provider. The assessees urged that a reading
of the rules, entitles it to credit immediately on receiving the inputs
irrespective of the subsequent treatment (i.e. fastening, bolting etc. whether
or not resulting into an immovable property). It was argued that CESTAT
failed to appreciate that any subsequent treatment of capital goods or inputs
after receipt by the provider of output service is not relevant for the purpose
of availing credit in terms of Rule 3 of Credit Rules. The only condition
which needs to be satisfied is that the said goods must be used for providing
the output service, which is not disputed by the Respondent in the present
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case. The assessees argued that there was no break of chain linking
availability and actual availment of CENVAT credit. After making a
reference to the sample invoices, the assessees pointed out that the towers
and shelters are purchased in CKD condition and not angles, beams or bars.
The activity of installation is done either at the behest of the supplier or at
the assessees request. The third-party service provider merely erects and
installs the towers and shelters, thereby collecting labour charges for
rendition of service which is subject to service tax. Thus, the activity of the
service provider is confined only to installation of towers and shelters
brought in CKD condition at the towers site. There is no loss of identity of
goods or emergence of fresh identity with a distinct character, name or use as
also there is no transformation or value addition.
59. It was argued that as long as the identity of inputs received and inputs
installed are one and the same, in the absence of any manufacturing
operation, there is no breakage of the credit chain. The manufacturer/ service
provider sourcing the capital goods would be entitled to utilize the duties
paid on the capital goods for payment of Excise duties on final products or
resultant output services. The assessees claim credit on civil foundations as
well, which are prepared by third party service providers who pay service tax
on these activities which are claimed as input service credit by (the
assessees). In this regard, they rely on Explanation- II. They relied on the
CESTATs decision in Bharti Airtel (supra), on word in it was held that
Explanation II would apply only to manufacturers and inputs and output
service providers. However, a similar restriction was not introduced in the
definition of input services. Therefore, the assessees claimed that they are
CEAC 12/2016 and other connected matter Page 51 of 67
entitled to claim credit of input services on these activities towards rendition
of output services namely, business support services.
60. During the hearing, Revenue urged that the mobile towers and shelters
when erected become immovable structure and does not fall within the
definition of ,,capital goods and, therefore, the CENVAT credit cannot be
granted thereof. Further, it submits that the Supreme Court through various
decisions has laid down the twin test of movability and marketability for the
levy of duty of excise and consequently, grant of CENVAT credit. In the
regard, reliance was placed on Triveni Engineers, particularly the following
observations:
4. There can be no doubt that if an article is an immovable
property, it cannot be termed as 'excisable goods' for purposes
of the Act. From a combined reading of the definition of
immovable property' in Section 3 of the Transfer of Property
Act, Section 3(25) of the General Clauses Act, it is evident that
in an immovable property there is neither mobility nor
marketability as understood in the Excise Law. Whether an
article is permanently fastened to anything attached to the earth
require determination of both the intention as well as the
factum of fastening to anything attached to the earth and this
has to be ascertained from the facts and circumstances of each
case.
61. The next decision cited was Quality Steel Tubes Pvt. Ltd. v. Controller
of Central Excise, (1995) 2 SCC 372 in which the Supreme Court considered
the question whether the tube mill and welding head erected and installed by
the appellant for the manufacture of tubes and pipes out of duty-paid raw
material were assessable to duty under residuary Tariff Item No. 68 of the
Schedule, being excisable goods within the meaning of Central Excise Act.
While re-stating the test, namely, first the article must be goods and secondly
CEAC 12/2016 and other connected matter Page 52 of 67
that it should be marketable or capable of being brought to market, it was
held that goods which are attached to the earth and thus become immovable
did not satisfy the test of being goods within the meaning of the Central
Excise Act nor can be said to be capable of being brought to the market for
being sold. In that case, it was found that both the tests were not satisfied
and, therefore, the tube mill and welding head erected by the appellant were
not eligible to excise duty. It was held that erection and installation of a plant
could not be held to be excisable goods and if such wide meaning was
assigned, it would result in bringing in its ambit structures, erections and
installations which would surely not be in consonance with accepted
meaning of excisable goods and its eligibility to duty. The relevant para is
extracted hereunder for ready reference:
5. In several decisions rendered by this Court
commencing from Union of India and Anr., v. Delhi
Cloth and General Mills Co. Ltd.: to Indian Cable Co.
Ltd. v. Collector of Central Excise, Calcutta:
1994ECR20(SC) the twin test of eligibility of an article to
duty under Excise Act are that it must be a good
mentioned either in the Schedule or under Item 68 and
must be marketable. In Delhi Cloth Mills (supra) it
having been held that the word 'good' applies to those
goods which can be brought to market for being bought
and sold it is implied that it applies to such goods as are
moveable. The requirement of the goods being brought to
the market for being brought and sold has become known
as the test of marketability which has been reiterated by
this Court in Collector of Central Excise v. Ambalal
Sarabhai Enterprises: The Court has held in Union
Carbide India Ltd. v. Union of India and Ors.: that even
if a good was capable of being brought to market, it
would satisfy the test of marketability.
CEAC 12/2016 and other connected matter Page 53 of 67
The basic test, therefore, of levying duty under the Act is
two fold. One, that any article must be a good and
second, that it should be marketable or capable of being
brought to market. Goods which are attached to the earth
and thus become Immovable do not satisfy the test of
being goods within the meaning of the Act nor it can be
said to be capable of being brought to the market for
being brought and sold. Therefore, both the tests, as
explained by this Court, were not satisfied in the case of
appellant as the tube mill or welding head having been
erected and installed in the premises and embedded to
earth they ceased to be goods within meaning of Section
3 of the Act.
6. Learned Counsel for the Revenue urged that even if the
goods were capable of being brought to the market it
would attract levy. True, buterection and installation of a
plant cannot be held to be excisable goods. If such wide
meaning is assigned it would result in bringing in its
ambit structures, erections and installations. That surely
would not be in consonance with accepted meaning of
excisable goods and its eligibility to duty.
62. Sirpur Paper Mills (supra) was also cited, especially the following
observations:
5. Apart from this finding of fact made by the Tribunal,
the point advanced on behalf of the appellant, that
whatever is embedded in earth must be treated as
immovable property is basically not sound. For example,
a factory owner or a house-holder may purchase a water
pump and fix it on a cement base for operational
efficiency and also for security. That will not make the
water pump an item of immovable property. Some of the
components of water pump may even be assembled on
site. That too will not make any difference to the
principle. The test is whether the paper making machine
CEAC 12/2016 and other connected matter Page 54 of 67
can be sold in the market. The Tribunal has found as a
fact that it can be sold. In view of that finding, we are
unable to uphold the contention of the appellant that the
machine must be treated as a part of the immovable
property of the company. Just because a plant and
machinery are fixed in the earth for better functioning, it
does not automatically become an immovable property.
63. The other decision cited was Ahmedabad Municipal Corporation vs.
GTL Infrastructure Limited & Ors, (2017) 3 SCC 545, where it was held as
under:
12. The short contention of the cellular operators
advanced before the high court is the Section 127(1)(c)
read with Section 145A of the Gujarat Act are
legislatively incompetent as mobile towers are beyond
the scope of Entry 49 of List II of the seventh schedule to
the Constitution which is in the following terms.
49. Taxes on land and buildings.
XXX
31. Viewed in the light of the above discussion, if the
definition of "land" and "building" contained in the
Gujarat Act is to be understood, we do not find any
reason as to why, though in common parlance and in
everyday life, a mobile tower is certainly not a building,
it would also cease to be a building for the purposes of
Entry 49 List II so as to deny the State Legislature the
power to levy a tax thereon. Such a law can trace its
source to the provisions Entry 49 List II of the Seventh
Schedule to the Constitution.
64. CBEC Circular No. 58/1/2002-CX dated 15.01.2002,was relied on, to
say that the when the final product is considered as immovable and hence,
non-excisable, the same product in CKD condition or unassembled form will
also not be dutiable as a whole by applying Rule 2 (1) of the Credit Rules of
CEAC 12/2016 and other connected matter Page 55 of 67
Interpretation of the Central Excise Tariff. The relevant portion of the
circular is extracted hereunder for reference:
"4. (v) if items assemble or erected at site and attached
by foundation to earth cannot be dismantled without
substantial damage to its components and thus cannot be
reassembled, then the items would not be considered as
moveable and will, therefore, not be excisable goods.
(vi) if any goods installed at site (example paper making
machine) are capable of being sold or shifted as such
after removal from the base and without dismantling into
its components/ parts, the goods would be considered to
be moveable and thus excisable. The mere fact that the
goods, though being capable of being sold or shifted
without dismantling, are actually dismantled into their
components/ parts for ease of transportation etc., they
will not cease to be dutiable merely because they are
transported in dismantled condition. Rule 2(a) of the
Rules for the Interpretation of Central Excise Tariff will
be attracted as guiding factor is capability of being
marketed in the original form and not whether it is
actually dismantled or not, into is components. Each case
will therefore have to be to decided keeping in view the
facts and circumstances, particularly whether it is
practically possible (considering the size and nature of
the goods, capability of goods to move on self propulsion
ships etc.) to remove and sell the goods as they are,
without dismantling into their components. If the goods
are incapable of being sold, shifted and marketed without
first being dismantled into component parts, the goods
would be considered as immovable and therefore, not
excisable to duty.
(vii) When the final product is considered as immovable
and hence not excisable goods, the same product in CKD
or unassembled form will also not be dutiable as a whole
by applying Rule 2(a) of the Rules of Interpretation of
Central Excise Tariff. However, components, inputs and
CEAC 12/2016 and other connected matter Page 56 of 67
parts which are specified excisable products will remain
dutiable as such identifiable goods at the time of their
clearance from the factory or warehouse.
65. The above analysis shows that the definition of ,,input does not
contain any condition relating to emergence of immovable property to be
ineligible for taking credit. The eligibility of credit must be determined at the
time of receipt of the goods in terms of Rule 4(1) of the Credit Rules. Credit
cannot be denied so as long as the goods are used for the provision of the
output service. The issue for availment of CENVAT credit came up before
the Gujarat High Court in Mundra Ports and Special Economic Zone Ltd.
2015 TIOL 1288 HC & ST. The High Court held that assessee would be
entitled to input credit for the cement and steel used in the construction of
new jetties and other commercial buildings. In the said case, the High Court
has observed in para 7, 8 and 9 as under:
7. It is not disputed that jetty was constructed and input
credit was claimed on cement and steel. The aforesaid
definition of Rule 2(k) was applicable and Explanation 2
did not provide that cement and steel would not be
eligible for input credit. According to learned counsel for
the appellant, the appellant is not manufacturer and,
therefore, the provisions Explanation 2 of Rule 2(k)
would be applicable only to the factory and
manufacturer. The appellant is neither having any
factory nor he is manufacturer. The appellant is a service
provider of port. We need not go into this question as to
whether the appellant is a factory or manufacturer or
service provider in view of the fact that it is not disputed
by Mr. Y.N. Ravani, learned counsel appearing for the
Revenue in this Tax Appeal that the appellant provides
service on port for which he is getting jetty constructed
through the contractor and the appellant has claimed
input credit on cement and steel. The cement and steel
CEAC 12/2016 and other connected matter Page 57 of 67
were not included in Explanation 2 from 2004 upto
March 2006. The Cenvat Credit Rules 2004 were
amended in exercise of the powers conferred by section
37 of the Central Excise Act 1944 with effect from
7.7.2009, the date on which it was notified by the Central
Government from the date of the notification. According
to learned counsel for the appellant, this amended
definition would apply only to the factory or
manufacturer and would not apply to the service
provider. According to him, either before the amendment
made in the year 2009 or thereafter, the appellant was
neither factory nor manufacturer and he has only
constructed jetty by use of cement and steel for which he
was entitled for input credit as jetty was constructed by
the contractor, but the jetty is situated within the port
area and the appellant is a service provider. According
to the appellant, his case is squarely covered by the
judgment of the Division Bench of the Andhra Pradesh
High Court in Commissioner of Central Excise,
Visakhapatnam-II Vs. Sai Sahmita Storages (P) Limited,
2011 (270) E.L.T. 33 (A.P.) wherein in paragraph 7, it
has been clearly held that a plain reading of the
definition of Rule 2(k) would demonstrate that all the
goods used in relation to manufacturer 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. It is not in dispute that the appellant is a
taxable service provider on port under the category of
port services. Therefore, the appellant was entitled for
input credit and the decision of the Division Bench of the
Andhra Pradesh High Court squarely applies to the facts
of the case and answered the question on which the
appeal has been admitted.
8. Mr. Y.N. Ravani, learned counsel for the Revenue has
placed reliance on the decision of the Larger Bench of
the Tribunal in Vandana Global Limited Vs.
Commissioner of Central Excise, Raipur, 2010 (253)
CEAC 12/2016 and other connected matter Page 58 of 67
E.L.T. 440. We have carefully gone through the decision
of the Larger Bench of the Tribunal. We do not find that
amendment made in Cenvet Credit Rules 2004 which
come into force on 7.7.2009 was clarificatory amendment
as there is nothing to suggest in the Amending Act that
amendment made in Explanation 2 was clarificatory in
nature. Wherever the legislature wants to clarify the
provision, it clearly mentions intention in the notification
itself and seeks to clarify existing provision. Even, if the
new provision is added then it will be new amendment
and cannot be treated to be clarification of particular
thing or goods and/or input and as such, the amendment
could operate only prospectively. In our opinion, the
view taken by the Tribunal is based on conjectures and
surmises as the Larger Bench of the Tribunal used the
expression that intention behind amendment was to
clarify. The coverage under the input from where this
intention has been gathered by the Tribunal has not been
mentioned in the judgment. There is no material to
support that there was any legislative intent to clarify any
existing provision. For the same reason, as mentioned
above, the decision of the Apex Court in Sangam
Spinners Limited Vs. Union of India and others, reported
in (2011) 11 SCC 408 would not be applicable to the
facts of the instant case.
9. Mr. Ravani has also vehemently urged that since jetty
was constructed by the appellant through the contractor
and construction of jetty is exempted and, therefore,
input credit would not be available to the appellant as
construction of jetty is exempted service. The argument
though attractive cannot be accepted. The jetty is
constructed by the appellant by purchasing iron, cement,
grid etc. which are used in construction of jetty. The
contractor has constructed jetty. There are two methods,
one is that the appellant would have given entire contract
to the contractor for making jetty by giving material on
his end and then make the payment, the other method was
CEAC 12/2016 and other connected matter Page 59 of 67
that the appellant would have provided material to the
contractor and labour contract would have been given.
The appellant claims that he has provided cement, steel
etc. for which he was entitled for input credit and,
therefore, in our opinion, the appellant was entitled for
input credit and it cannot be treated that since
construction of jetty was exempted, the appellant would
not be entitled for input credit. The view taken contrary
by the Tribunal deserves to be set aside.
66. The Division Bench of the Bombay High Court in Coca Cola India
Pvt. Ltd. v. Commissioner of Central Excise, Pune III, 2009 (242) ELT 168
(Bom) construed Section 2 (l) as follows:
39. The definition of input service which has been
reproduced earlier, can be effectively divided into the
following five categories, in so far as a manufacturer is
concerned:
(i) Any service used by the manufacturer, whether
directly or indirectly, in or in relation to the manufacture
of final products
(ii)Any service used by the manufacturer whether directly
or indirectly, in or in relation to clearance of final
products from the place of removal
(iii) Services used in relation to setting up,
modernization, renovation or repairs of a factory, or an
office relating to such factory,
(iv) Services used in relation to advertisement or sales
promotion, market research, storage upto the place of
removal, procurement of inputs,
(v) Services used in relation to activities relating to
business and outward transportation upto the place of
removal;
CEAC 12/2016 and other connected matter Page 60 of 67
Each limb of the definition of input service can be
considered as an independent benefit or concession or
exemption. If an assessee can satisfy any one of the limbs
of the above benefit, exemption or concession, then credit
of the input service would be available. This would be so
even if the assessee does not satisfy other limb/limbs of
the above definition. To illustrate, input services used in
relation to setting up, modernization, renovation or
repairs of a factory will be allowed as credit, even if they
are assumed as not an activity relating to business as
long as they are associated directly or indirectly in
relation to manufacture of final products and
transportation of final products upto the place of
removal. This would follow from the observation of the
Supreme Court in Kerala State Co-operative Marketing
Federation Ltd. and Ors. v. Commissioner of Income
Tax: 1998 (5) SCC 48, which is as under:
7. We may notice that the provision is introduced with a
view to encouraging and promoting growth of co-
operative sector in the economic life of the country and
in pursuance of the declared policy of the Government.
The correct way of reading the different heads of
exemption enumerated in the section would be to treat
each as a separate and distinct head of exemption.
Whenever a question arises as to whether any particular
category of an income of a co-operative society is exempt
from tax what has to be seen is whether income fell
within any of the several heads of exemption. If it fell
within any one head of exemption, it would be free from
tax notwithstanding that the conditions of another head
of exemption are not satisfied and such income is not free
from tax under that head of exemption.
67. In the case of CCE, Pune v. Bellsonica Auto Components India Pvt.
Ltd., 2015 (40) STR 41 (P & H), the respondents manufactured metal
CEAC 12/2016 and other connected matter Page 61 of 67
components for automobiles and supplied the product to Maruti Udyog
Limited who used them in respect of the automobiles manufactured by them.
The respondents paid service tax in respect of the lease rent. Further, the
respondents set up factory for which they availed the service of erection,
installation and commissioning engineers who had paid the Service tax in
respect of the amounts paid to them. The respondents availed CENVAT
credit in respect of the said service tax paid. The question for consideration
before the court was whether the said services fall within the meaning of
the term input service` in Section 2(l)(ii). The respondent analyzed Section
2 (l) by dividing it into two parts terming them the ,,mean part and the
,,includes part and that the present case would fall under both the parts of the
definition as the phraseology is wide enough to cover the said services, the
same being directly or indirectly or in any event in relation to the
manufacture of the respondents final product. The Court after relying on the
decision of the Bombay High Court in Coca Cola India Pvt. Ltd. (supra),
held that the respondent had rightly availed CENVAT credit. The relevant
portion of the judgment is extracted hereunder:
7. We are entirely in agreement with Mr. Amrinder
Singh's submission on behalf of the respondents, that the
CENVAT Credit taken of the tax paid in respect of the
said input services can be utilized by the respondents in
accordance with the CENVAT Credit Rules. Mr.
Amrinder Singh rightly analysed Section 2(l) by dividing
it into two parts terming them the 'mean' part and the
'includes' part and that the present case would fall under
both the parts of the definition as the phraseology is wide
enough to cover the said services, the same being directly
or indirectly or in any event in relation to the
manufacture of the respondents' final product.
CEAC 12/2016 and other connected matter Page 62 of 67
8. The land was taken on lease to construct the factory.
The factory was constructed to manufacture the final
product. The land and the factory were required directly
and in any event indirectly in or in relation to the
manufacture of the final product and for the clearance
thereof up to the place of removal. But for the factory the
final product could not have been manufactured and the
factory needed to be constructed on land. The land and
the factory are used by the manufacturer in any event
indirectly in or in relation to the manufacture of the final
product, namely, metal-sheets. The respondents' case,
therefore, falls within the first part of Rule 2(l) aptly
referred to by Mr. Amrinder Singh as the "means part".
9. The respondents' case also falls within the second part
of Rule 2(l) i.e. the "inclusive" part. The definition of the
words "input service" also specifically includes the
services used in relation to setting up of a factory. Mr.
Amrinder Singh rightly contended that it was not the
appellant's case that the services were not used for the
setting up of the factory. The doubt in this regard is set at
rest by the second part of Section 2(l)(ii) which includes
within the ambit of the words 'input service' the setting
up of a factory and the premises of the provider of the
output service. The inclusive definition, therefore, puts
the matter, at least so far as the payment for services
rendered by the civil contractor for setting up the factory
is concerned, beyond doubt. As the plain language of
Section 2(l)(ii) indicates, the services mentioned therein
are only illustrative. The words "includes services"
establish the same. It can hardly be suggested that the
lease rental is not for the use of the land in relation to the
manufacture of the final product.
68. On the basis of the above reasoning, the Tribunal had denied
CENVAT credit to the assessee on the premise that the towers erected result
into an immovable property, which is erroneous and contrary to the
CEAC 12/2016 and other connected matter Page 63 of 67
judgment of the Supreme Court in the case of Solid and Correct Engineering
(supra). The towers which are received in CKD condition, are assembled/
erected at the site subsequently giving rise to a structure that remains
immovable till its use because of safety, stability and commercial reasons of
use. The entitlement of CENVAT credit is to be determined at the time of
receipt of goods. The fact that such goods are later on fixed/ fastened to the
earth for use would not make them a non-excisable commodity when
received. Therefore, this question is answered in favour of the assessee and
against the Revenue.
Re. Question No. 5 i.e. whether emergence of immovable structure at
intermediate stage (assuming without admitting) is a criterion for denial of
CENVAT credit?
69. The learned counsel for the assessees argued that, for instance, there is
an emergence of immovable property in the intermediate stage, then too, the
credit on input or input service is admissible even if the item is used in an
intermediate product which is exempt from payment of duty. Reliance in this
regard was placed on the following judgments: Tata Iron and Steel Company
v. CCE, 2000 (117) ELT 669; Madras Aluminum Company Ltd. Vs. CCE,
2001 (136) ELT 182; Mahalaxmi Glass Works Ltd. v. CEE, 1999 (113) ELT
558 and the decision of the Andhra Pradesh High Court in CCE,
Vishakhapatnam- II v. Sai Sahmita Storages (P) Limited, 2011 (270) ELT 33
(A.P.). In Tata Iron and Steel Company (supra), the court observed that a
product may be a final product, ipso facto, or that it may be an intermediate
one, for another article; therefore, tools cleared on payment of duty were
final products; however, those used captively were intermediate goods and
entitled to credit. Madras Aluminum Company Ltd (supra) was a case where
CEAC 12/2016 and other connected matter Page 64 of 67
the product was used in water boiler for the preparation of softening agents
to reduce scale formations and avoid boiler breakdown at the time of steam
generation for use as also to reduce corrosive effects of acid , credit was
allowed because it aided in preparation of the machinery for more effective
functioning of the machine as eligible inputs. Therefore, no reason is found
to deny the credit on these items.
70. Before CENVAT Credit Rules, 2001, the previous rules provided for
MODVAT. The CENVAT Credit Rules provide specific exemption by
addition to Rule 2(g) stating that the input goods used in the manufacture of
capital goods which are further used in the factory of manufacturer. Thus, in
terms of the definition of ,,input contained in 2(g) read with Explanation (2),
any input which is used in the manufacture of capital goods, which is further
used in the factory of the manufacture is eligible for credit. It would also be
useful to notice that in Mahalaxmi Glass (supra) the Revenue refused credit,
stating that furnace was immovable property as it was built at site. It was
held that the bricks used to build the furnace were undoubtedly part of the
furnace which Capital Goods is. The fact that the furnace in questions was
not classifiable under a particular tariff heading would not affect the fact
that it is covered by the category of machines machinery etc. specified in
Clause l(a) to the explanation to Rule 173Q. The bricks which form part of
the furnace would therefore be eligible for credit under Clause 1(b). In the
absence of any express provision to deny credit to parts of such goods
Commissioner's reasoning cannot be upheld. We cannot import anything
into the rule which does not exist in it.
71. Sai Sahmita Storages (P) Limited, is, in our opinion, a decision that
held that a plain reading of the definition of Rule 2(k) would demonstrate
CEAC 12/2016 and other connected matter Page 65 of 67
that 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.
72. In the present case, it is not in dispute that the appellant is a taxable
service provider providing passive telecommunication service. Therefore,
the assessee is entitled for input credit on the weight of judicial authority
discussed above. It is also clear that several High Courts in different contexts
have taken a view that credit of excise duty and service tax paid would be
available irrespective of the fact that inputs and input services were used for
creation of an immovable property at the intermediate stage, if it was
ultimately used in relation to provision of output service or manufacturing of
final products.
73. The conclusion of CESTAT, denying the assessee CENVAT credit on
the premise that the towers erected result in immovable property, is
erroneous and plainly contrary to Solid and Correct Engineering (supra).
The towers that are received in CKD condition, are erected at site,
subsequently, giving rise to a structure that remains, safe and stable
(commercial reasons of use). The fact that in the intermediate stage, an
immovable structure emerged, is of no consequence, in the facts of the
present case. It is a settled principle of law that entitlement of CENVAT
credit is to be determined at the time of receipt of the goods. If the goods that
are received qualify as inputs or capital goods, the fact that they are later
fixed/fastened to the earth for use would not make them a non-excisable
commodity when received. The CESTAT failed to consider the fact in the
event antennae and BTS are to be relocated, the assessee also has to relocate
the tower and the pre-fabricated shelters, thereby, implying that the towers
CEAC 12/2016 and other connected matter Page 66 of 67
and the per-fabricated shelters, are not immovable property. Therefore, the
CESTAT erred in relying upon the decision of the Bharti Airtel (supra).
74. This question of law too, is therefore, answered against the Revenue
and in favour of the assessee/appellants.
75. In view of the foregoing analysis- and since all the questions of law
framed in these appeals have been answered in favour of the assessee and
against the Revenue, the assessees appeals have to succeed and are allowed;
for the same reasons, the Revenues appeals are to be rejected; they are
therefore, dismissed. In the peculiar circumstances of this case, there shall be
no order on costs.
S. RAVINDRA BHAT
(JUDGE)
SANJEEV SACHDEVA
(JUDGE)
OCTOBER 31, 2018
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