The Supreme Court has on 20 November 2024 held that the telecom companies are entitled to avail Cenvat credit of the central excise duty paid on towers and shelters/Pre-fabricated buildings (PFBs) procured by them and installed/erected for providing output services of telecommunication services. One of the assessee was represented by Lakshmikumaran & Sridharan Attorneys here.
Towers and PFBs are ‘goods’:
The Court was of the view the towers and shelters were ‘goods’ as were not immovable. It was opined that merely because certain articles are attached to the earth, it does not ipso facto render these immovable properties, if such attachment to earth is not intended to be permanent but for providing support to the goods concerned and make their functioning more effective, and if such items can still be dismantled without any damage or without bringing any change in the nature of the goods and can be moved to market and sold. The Supreme Court, for this purpose, noted the various tests/principles like nature of annexation, object of annexation, intendment of the parties, functionality test, permanency test, and marketability test, as applied by various Courts in order to determine the nature of the property.
Tower and PFBs are ‘capital goods’:
Further, the Apex Court held that a mobile tower can be treated to be an accessory of antenna and BTS and accordingly in terms of sub-clause (iii) of Rule 2(a)(A) of the Cenvat Credit Rules, 2004, can also be treated as ‘capital goods’. It was noted that a tower is needed to keep the antenna at an appropriate height and keep it stable. Without the tower, it is not possible to hoist the antenna at the requisite height and without it being securely fastened to the tower, antenna cannot be kept firm and steady for proper receipt and transmission of radio signals.
Similarly, the Court noted that the PFBs house electric cables, other equipment related to antenna, BTS and generator. It was held that thus, PFBs enhance the efficacy and functioning of mobile antenna as well as BTS and accordingly, PFBs can also be considered as accessories to the antenna and BTS which are ‘capital goods’.
Tower and PFBs are ‘inputs’:
Also, the tower and the pre-fabricated buildings were held to be ‘inputs’ for the purpose of credit availment. The Court noted that any item so long as it qualifies as a ‘goods’ and is ‘used’ for providing output service, would come within the purview of ‘input’ under Rule 2(k) of the Cenvat Credit Rules, and excise duty paid on such items can be claimed as Cenvat credit. It, in this regard, observed that the use of tower and PFB cannot be said to be so remotely connected with the output of service that these goods will go beyond the ordinary meaning of ‘use’. It was thus held that tower and PFBs being essential to rendering of output service of mobile telephony, these items certainly can be considered as ‘inputs’ akin to antenna.