M/S BHARTI AIRTEL LTD. versus THE COMMISSIONER OF CENTRAL EXCISE, PUNE (20/11/2024) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

Resolving conflicting views of the Bombay and Delhi High Courts, the Supreme Court held that mobile towers and prefabricated shelters (PFBs) are movable property and so 'goods'. As accessories of the antenna and BTS, which fall under Chapter 85, they are 'capital goods' under Rule 2(a)(A)(iii) of the CENVAT Credit Rules, 2004, and they are also 'inputs' under Rule 2(k)(ii). Mobile service providers may therefore take CENVAT credit of excise duty paid on them against service tax.

Issues

Whether mobile towers, their parts and prefabricated buildings, once fixed to the earth or a building, are immovable property or movable 'goods'.
Whether towers and PFBs are 'capital goods' under Rule 2(a)(A) of the CENVAT Credit Rules, 2004 as components or accessories of the antenna and BTS.
Whether towers and PFBs are 'inputs' used for providing output service under Rule 2(k)(ii).
What weight a CBEC circular denying such credit carries against the Court's interpretation.

Provisions considered

Rule 3(1), CENVAT Credit Rules, 2004The enabling provision allowing a provider of taxable service to take credit of excise duty paid on capital goods or inputs received in its premises; held available to the service providers once towers and PFBs qualified as capital goods and inputs. (¶¶ 7.1, 11, 11.1, 11.11.12)
Rule 2(a)(A)(i) and (iii), CENVAT Credit Rules, 2004Towers and PFBs do not themselves fall under the listed Chapters or headings, but as accessories of the antenna and BTS (Chapter 85 capital goods) used for providing output service they are capital goods under sub-clause (iii) read with sub-clause (i). (¶¶ 11.10, 11.10.1, 11.11, 11.11.5, 11.11.6, 11.11.9, 11.11.11, 11.11.12)
Rule 2(k)(ii), CENVAT Credit Rules, 2004'Input' for a service provider means all goods, other than the excluded fuels and motor vehicles, used for providing any output service; the Court declined to read it restrictively and held towers and PFBs, being goods used proximately for mobile service, to be inputs. Explanation 2 was held irrelevant. (¶¶ 11.12, 11.12.1, 11.12.2, 11.12.3, 11.12.4, 11.12.5, 11.12.6)
Section 2(7), Sale of Goods Act, 1930As 'goods' is undefined in the CENVAT Rules and the Central Excise Act, the Court relied primarily on this definition (every kind of movable property other than actionable claims and money), so the question turned on whether towers and PFBs are movable. (¶¶ 11.2.3, 11.2.5, 11.2.6, 11.2.7, 11.2.8)
Section 3(26) and Section 3(36), General Clauses Act, 1897Movable property is all property other than immovable property, the two being mutually exclusive; immovable property includes things attached to the earth or permanently fastened to anything attached to it. (¶¶ 11.3.1, 11.3.2, 11.3.4, 11.3.5, 11.5)
Section 3 ('attached to the earth'), Transfer of Property Act, 1882Towers and PFBs are neither rooted in nor embedded in the earth like walls or buildings, nor attached to what is so embedded for its permanent beneficial enjoyment; their fixing by nuts and bolts is for stability of the antenna, so they are not attached to the earth. (¶¶ 11.4, 11.5, 11.9.1, 11.9.2, 11.9.8, 11.9.9)

Held

Attachment to the earth does not by itself make an article immovable. The Court summarised the tests: nature and object of annexation, intention of the parties, functionality, permanency (whether it can be dismantled and relocated without damage) and marketability; no single test is decisive. (¶¶ 11.7, 11.8, 11.8.1)
Towers are bought in knocked-down condition, bolted to the earth or a building only to keep the antenna stable and wobble-free, and can be unbolted, relocated or sold without damage to the tower; any damage on relocation is to cables or BTS equipment, not to the tower or PFB. Towers and PFBs are therefore movable property and 'goods'. T.T.G. Industries, Quality Steel Tubes, Mittal Engineering and Triveni Engineering were distinguished. (¶¶ 11.7.11, 11.7.13, 11.7.16, 11.9.4, 11.9.5, 11.9.6, 11.9.7, 11.9.9, 11.9.14, 11.9.18)
The Bombay High Court erred in treating the towers as immovable on a single criterion and in proceeding as if the assessee had admitted they were immovable structures, when that was the very issue in dispute; Solid and Correct Engineering had not been brought to its notice. (¶¶ 11.9.10, 11.9.11, 11.9.12)
A CBEC circular binds departmental officers but represents only the Revenue's understanding; the circular of 26.02.2008 denying credit on tower and shelter materials is of no avail and, to the extent contrary to the Court's findings, is unenforceable and liable to be withdrawn. (¶¶ 11.9.19, 11.9.20, 11.9.21, 11.9.22)
An accessory need not enter into the composition of the main article; an item that makes the main good fully functional or more effective may be its component or accessory. The narrower test applied by CESTAT, relying on Saraswati Sugar Mills, is not the only criterion. The tower, needed to hold the antenna at height and steady, is an accessory of the antenna and BTS, and the PFB, which houses BTS equipment and backup power, likewise enhances their functioning. (¶¶ 11.11.4, 11.11.5, 11.11.6, 11.11.8, 11.11.9, 11.11.10, 11.11.11)
Being accessories of Chapter 85 capital goods, used for providing output service and received in the service provider's premises, towers and PFBs are capital goods under Rule 2(a)(A)(iii) read with (i), and CENVAT credit of excise duty paid on them is available under Rule 3(1). (¶ 11.11.12)
Under Rule 2(k)(ii), any goods used for providing output service, other than the excluded items, are inputs; 'use' need only be proximate, not remote. Rule 2(k)(ii) need not be read more narrowly than the manufacturing limb, and towers and PFBs, though not electrical equipment, are indispensable to transmission of signals and so are inputs. (¶¶ 11.12.1, 11.12.2, 11.12.3, 11.12.4, 11.12.5, 11.12.6)

Result

Delhi High Court's judgment in Vodafone Mobile Services Ltd. v. CST upheld and the Revenue's appeals against it (including the appeal from CESTAT in the MTNL case) dismissed; Bombay High Court's judgment in Bharti Airtel Ltd. set aside and the assessees' appeals allowed; all appeals disposed of accordingly.