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Cenvat credit available on towers and shelters used for telecom service

15th November

Delhi High Court has recently allowed Cenvat credit on towers, shelters and parts thereof used for providing telecommunication services. The Court in this regard distinguished its judgement from the various judgments of the Bombay High Court.

Not an immovable property

Rejecting Revenue department’s plea of goods being immovable property and hence not eligible for Cenvat credit, it was held that machine or apparatus annexed to 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 earth and therefore, would not constitute an immovable property. The court was of the view that the fixed machines do not per se qualify its description of ‘attached to the earth’ in any one of the three clauses of Section 3 of the Transfer of Property Act.

It also observed that goods were received in CKD condition and at the time of their receipt, they were movable goods. Allowing the appeal, Court observed that CESTAT failed to appreciate the permanency test as laid down by the Supreme Court in Solid and Correct Engineering.

Towers and shelters are capital goods and inputs

It was also observed that the towers and shelters plainly act as components/ parts and in alternative as accessory to the Base Transmission System (BTS) and are covered by the definition of capital goods. The court noted that the towers formed part of the active infrastructure as the antennae cannot be placed at that altitude to generate uninterrupted frequency, and that shelters are accessories for the placement of various BTS equipment and other items for it to remain in a dust free, ambient temperature.

Further, observing that the definition of inputs under Rule 2(k) is wide enough to bring all goods which are used for providing any output service, it was held that towers and pre-fabricated shelters form an essential in the provision of telecommunication service. It was held that the towers in CKD condition are used for the purpose of supplying the service and therefore, would qualify as ‘inputs’.

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