Gauhati High Court
C.Ex.App./11/2019 on 13 February, 2025
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GAHC010174262019
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THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
Case No. : C.Ex.App./7/2019
M/S. BHARTI AIRTEL LTD.,
MEGHA PLAZA, 6TH FLOOR G.S. ROAD
CHRISTIAN BASTI GUWAHATI- 781005.
.....Appellant
- VERSUS-
THE COMMISSIONER OF CENTRAL EXCISE,
GUWAHATI, 5TH FLOOR, SETHI TRUST BUILDING,
G.S. ROAD, BHANGAGARH, GUWAHATI, ASSAM-781005.
Linked Case : C.Ex.App./11/2019
COMMISSIONER, CENTRAL GOODS AND SERVICES TAX AND CENTRAL
EXCISE, GST BHAWAN, KEDAR ROAD,
FANCY BAZAR, GUWAHATI- 781001.
.....Appellant
- VERSUS-
M/S BHARTI AIRTEL LTD.,
MEGHA PLAZA, 6TH FLOOR, G.S. ROAD,
CHRISTIAN BASTI, GUWAHATI- 781005.
.....Respondent
- BEFORE -
HON'BLE THE CHIEF JUSTICE MR. VIJAY BISHNOI
HON'BLE MR. JUSTICE N. UNNI KRISHNAN NAIR
For the Appellant(s) : Mr. S. Bharali and Mr. M. Das, Advocates in C. Ex. App.
No.7/2019.
: Mr. S.C. Keyal, Sr. SC, CBDT, IT (NER) in C.Ex.App. No.11/2019.
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For the Respondent(s) : Mr. S.C. Keyal, Sr. SC, CBDT, IT (NER) in C. Ex. App.
No.7/2019.
: Mr. S. Bharali and Mr. M. Das, Advocates in C. Ex. App.
No.11/2019.
Date of Hearing & Judgment : 13.02.2025.
JUDGMENT & ORDER (ORAL)
(Vijay Bishnoi, CJ)
These two Central Excise Appeals are preferred on behalf of the
appellants being aggrieved with the final order No.FO/A/77224-77226/2018,
dated 30.10.2018 passed by the Customs, Excise and Service Tax Appellate
Tribunal, Kolkata (hereinafter to be referred as "CESTAT") in App. Nos.ST/166-
167/2009 and ST/42/2011.
C.Ex.App. No.7/2019 is preferred by the appellant, Bharti Airtel Ltd.
whereas C. Ex. App. No.11/ 2019 is preferred by Revenue.
2. This Court, Vide order dated 20.05.2019, while admitting C. Ex. App.
No.7/2019 has framed the following questions of law:
"(1) Whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT)
was right in concluding that the towers, shelters and accessories used by
the appellant for providing business support services are immovable
property?
(2) Whether the appellant is 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
Cenvat Credit Rules, 2004?
(3) Whether the CESTAT erred in applying the nexus test with reference to
MS angles and Channels, whereas according to the appellant what was
brought to the site were towers, shelters and accessories in CKD/SKD
condition for providing services?
(4) Whether the appellant was justified in terms of Rule 4(1) of the Cenvat
Credit Rules, 2004, in claiming Cenvat Credit of excise duty paid by the
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manufacturer of towers and shelters after receipt of such towers and
shelters at their premises (i.e. tower sites)?
(5) Whether emergence of immovable structure at intermediate stage
(assuming without admitting) is a criterion for denial of Cenvat Credit?"
3. Similarly, vide order dated 09.09.2019 passed in C. Ex. App.
No.11/2019, this Court has framed the following questions of law:
"1. Whether the finding of the learned CESTAT that there was no
suppression of material facts is perverse to the materials on record ?
2. Whether in view of the stand taken by the appellant that there was
suppression of material facts, the learned CESTAT was justified in
holding that demand beyond the normal period of limitation shall not be
sustainable in law ?"
4. The brief facts of the cases are that appellant M/s Bharti Airtel Ltd.,
which is engaged in providing telecommunication services and holding service
tax registration, received a show cause notice dated 28.08.2008, wherein it was
alleged that the appellant had wrongfully taken credit on tower parts and
shelters in contravention of the CENVAT Rules since these are not recognized
either as capital goods or inputs and accordingly, it was proposed to disallow the
CENVAT credit of Rs.14,93,15,569 under Rule 14 of the CENVAT Rules, read
with Section 73 of the Finance Act, 1994. The said notice proposed to charge
interest under Section 75 of the Finance Act, 1994 and imposition of penalty
under Rule 15 of the CENVAT Rules read with Section 78 of the Act.
5. The contention of Excise Department was that the activity of
erection/fabrication of towers does not amount to manufacture. Tower materials
received by the assessee and used for erection/fabrication of tower cannot be
considered as inputs. Similarly, the shelters and shelter accessories do not have
any nexus with telecom service since these are used for housing/storage of
generator sets and other equipments. Thus CENVAT credit availed and utilized
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on these goods by the assessee in contravention of Rule 3 of the CENVAT Credit
Rules, 2004, read with Rule 6 of the Service Tax Rules 1994 amounted to
evading payment of service tax to the tune of Rs.14,93,15,569/-.
6. The appellant M/s. Bharti Airtel Ltd., replied to the said notice denying
and disputing the allegations made therein.
7. Thereafter, the case was adjudicated upon by the Commissioner,
Central Excise, Guwahati vide Order-in-Original No.04/COMMR/ST/2009, dated
31.03.2009 and disallowed the CENVAT Credit utilized by the assessee to the
tune of Rs.14,93,15,569/- and ordered for recovery of Rs.14,93,15,569/- along
with appropriate interest in terms of Rule 14 of the CENVAT Credit Rules, 2004
read with Section 73 and 75 of the Finance Act, 1994, as amended, and also
imposed penalty of an amount of Rs.14,93,15,569/- in terms of Rule 15 of the
CENVAT Credit Rules 2004 read with Section 78 of the Finance Act, 1994, as
amended.
8. Being aggrieved with the said order, the assessee, M/s Bharti Airtel
preferred an Appeal [Appeal No.ST/166/2009] before CESTAT, Kolkata, and the
CESTAT, vide order dated 30.10.2018 has partly allowed the appeal filed by the
appellant M/s Bharti Airtel Ltd. by setting aside the demand made beyond the
normal period of limitation and the penalties imposed. However, the Tribunal
has confirmed the demand, with interest, within the normal period of limitation.
9. As observed earlier, being aggrieved with the order dated 30.10.2018
passed by the CESTAT, separate appeals have been preferred by both the
appellants, Bharti Airtel as well as the Revenue, wherein the above referred
substantial questions of law have been framed by this Court.
C.Ex. App. No.11/2019 is preferred by the Revenue on the ground that
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the CESTAT has erred in holding that the extended period of limitation is not
applicable.
10. Learned counsel for the parties have argued that with the
pronouncement of the judgment by the Hon'ble Supreme Court in Civil Appeal
Nos.10409-10410 of 2014 [M/s. Bharti Airtel Ltd. Vs. The Commissioner
of Central Excise, Pune] along with batch of other connected appeals, the
controversy is set at rest.
11. The Hon'ble Supreme Court in M/s. Bharti Airtel Ltd. Vs. The
Commissioner of Central Excise, Pune] (supra) has held that Mobile Service
Providers (MSPs) could avail the benefit of Central Value Added Tax/CENVAT
Credit over excise duties paid on items such as mobile towers and prefabricated
buildings (PFBs).
The Hon'ble Supreme Court has further observed that the towers and
PFBs, though themselves are not electrical equipments, are essential for proper
functioning of antenna. Thus, tower being essential for rendering of the output
service of mobile telephony, these items certainly can be considered to be
"inputs" akin to antenna. It is further observed that without the towers and the
pre-fabricated buildings (PFBs), there cannot be proper service of mobile
telecommunication. Hence, these certainly would come within the definition of
"input" under Rule 2(k)(ii) of CENVAT Rules.
12. We have considered the submissions made on behalf of the learned
counsel appearing for the parties and have also gone through the decision of
the Hon'ble Supreme Court rendered in M/s. Bharti Airtel Ltd. Vs. The
Commissioner of Central Excise, Pune] (supra).
Relevant portions of the decision rendered by the Hon'ble Supreme Court
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rendered in M/s. Bharti Airtel Ltd. Vs. The Commissioner of Central
Excise, Pune] (supra) are reproduced hereunder:
"11.11.10 Thus, in our opinion, the restricted meaning of accessory given by
the CESTAT and not differed from by the Bombay High Court is not wholly
correct in as much as the meaning of accessory can have different ascribed
meanings as observed in the aforesaid decision.
11.11.11 There is no dispute to the fact that BTS is a composite system
consisting of the transmitter, receiver, antenna and other equipment, and
antenna can be said to be an integral part of BTS. As discussed above, and not
disputed by the Revenue, tower is needed to keep the antenna at an
appropriate height and keep it stable. Without the tower, it is not possible to
hoist the antenna at the requisite height and without it being securely fastened
to the tower, antenna cannot be kept firm and steady for proper receipt and
transmission of radio signals. Thus, there cannot be any doubt that a mobile
tower can be treated to be an accessory of antenna and BTS. Accordingly, since
in terms of sub-clause (iii) of Rule 2(a)(A), all components, spares and
accessories of such capital goods falling under sub-clause (i) would also be
treated as capital goods, a mobile tower can also be treated as "capital good".
11.11.12 We, therefore, agree with the conclusion arrived at by the Delhi High
Court that towers and shelters (PFBs) support the BTS/antenna for effective
transmission of mobile signals and thus enhance their efficiency and since
these articles are components/accessories of BTS/antenna which are
admittedly "capital goods" falling under Chapter 85 within sub-clause (i) of Rule
2(a)(A) of CENVAT Rules, these items consequently are covered by the definition
of "capital goods" within the meaning of sub-clause (iii) read with sub-clause (i)
of Rule 2(a)(A) of CENVAT Rules. Further, since these are used for providing
output service, i.e., mobile telecommunication service, and since these are
"capital goods" received in the premises of the provider of output service as
contemplated under Rule 3(1)(i), the Assessees would be entitled to CENVAT
credit on the excise duties paid on these goods.
11.12 The alternative plea taken by the Assessee is that these items, viz.,
mobile tower and the prefabricated buildings (PFBs) are "inputs' used for
providing output service of telecommunication and hence, being "inputs" under
Rule 2(k) which are used for providing output service i.e., mobile service,
CENVAT credit will be available in terms of Rule 3(1) which provides that a
provider of a taxable service shall be allowed to take credit on duties paid on
any input received in the premises of that provider of output service on or after
10th September, 2004 and this may be utilised for payment of service tax on
any output service under Rule 3(1) read with Rule 3(4) of the CENVAT Rules.
11.12.1 "Input" has been defined under Rule 2(k) to mean all goods used for
providing any output service. We have already held that tower and the
prefabricated buildings (PFBs) are not immovable property but are "goods"/
"capital goods" within the meaning of Rule 2(a)(A)(iii) and since these are used
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for providing output service, i.e. mobile service, these can be considered to be
"inputs" within the meaning of Rule 2(k) and CENVAT credit can be availed in
respect of these goods for payment of service tax.
The aforesaid definition clause under Rule 2(k) neither puts any condition
on it nor any qualifying words have been added to the word "input", except to
mean goods used for providing any output service. Hence, it would mean any
"good" which is used as "input" for providing taxable output service. Thus, any
item so long it qualifies as a "good" and is "used" for providing output service,
would come within the purview of "input" under Rule 2(k) and excise duty paid
on such items can be claimed as CENVAT credit which may in turn be used for
payment of service tax for the output service provided by the MSPs.
11.12.2 It may be also noted that there must be "use" of such goods to qualify
as "inputs". Without stretching too much the meaning of the words "use" and
"input", it can be said, without any doubt, that tower and PFBs are used for
providing output service by way of inputs. 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". Their usage in providing the output
service is not remote but proximate. In fact, without the use of tower and PFB, it
is inconceivable that the service provider can provide mobile services effectively.
Rather, towers and PFBs are indispensable being accessories of antenna for
providing mobile services. In this regard one may refer to the decision in
Member, Board of Revenue, West Bengal Vs. M/s. Phelps & Co. (P) Ltd.,
(1972) 4 SCC 121 wherein it was held that,
"6. We have now to find out what exactly is the meaning of the expression "for use by
him in the manufacture of goods for sale". Identical words are used in Section 8(b) of
the Central Sales Tax Act 1956. This court was called upon to find out the scope of that
expression in M/s. J.K. Cotton Spinning & Weaving Mills Co Ltd. Vs. Sales Tax Officer,
Kanpur and Anr. (AIR 1965 SC 1310). Dealing with that expression this Court
observed:
The expression "in the manufacture of goods" would 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.
In the present case the assessee company has sold the goods in question to certain
manufactures who were manufacturing iron steel materials. It is also clear from
question no. (i) that those gloves were to be used by workmen who were engaged in hot
jobs or in handling corrosive substances in the course of manufacture. That being so it
cannot be denied that those gloves had to be used in the course of manufacture."
11.12.3 It may be noted that in the definition of "input" under Rule 2(k) when it
relates to providing output service it has been simply defined as all goods,
except light diesel oil, high speed diesel oil, motor spirit, commonly known as
petrol and the motor vehicles used for providing any output service. However,
when the word "input" is defined relating to manufacture of product, it has been
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defined in a broad and expensive manner to mean all goods except light diesel
oil, high speed diesel oil and motor vehicle spirit commonly as petrol,
(i) used in or in relation to the manufacture of final products,
(ii) whether directly or indirectly,
(iii) whether contained in the final product or not,
(iv) and includes lubricating oils, greases, cutting oils, coolants,
accessories of the final product cleared along with the final
products,
(v) 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,
(vi) or for any other purpose, within the factory of production.
Thus, "input" in relation to manufacturing of final product would mean
not only those which are directly used but also indirectly used not only for
manufacture of final product whether contained in the final product or not but
also used in relation to manufacture of final product or for any of other purpose.
However, as mentioned above when "input" has been defined with
reference to providing output service, the definition clauses does not explain it
so elaborately but merely uses the simple expression i.e. "used for providing
any output service".
In our view, even if the definition of "input" with reference to output
service may not have been explained in an expansive manner as in the case of
manufacture of final product under Rule 2(k)(i), the definition of "input" with
reference to providing output service under Rule 2(k)(ii) need not be given a
restrictive meaning as sought to be done by the CESTAT by holding that tower
is not used directly for transmission of signal. In our view since the subject
matter is same, i.e., what amounts to "input" though the end use is for two
different products, one tangible, in the form of final manufactured product, and
one intangible i.e., output service, applying similar tests to determine what
amounts to "input" would not be impermissible.
11.12.4 We have also noted that the Bombay High Court had taken the view
that it cannot be said that it is impossible to provide the service without the aid
of the towers, thus showing non dependency of antenna on tower.
In our view, while theoretically antenna may receive and transmit signal
without the tower, practically, the same is not feasible and tower is an essential
accessory for keeping the antenna at an appropriate height and in a stable
position so that there is no disturbance in receiving and transmission of signal
and there can be wider coverage of signal. The link between antenna and tower
is almost inseparable for the effective functioning of antenna for providing
mobile telecommunication service and it cannot be said that the nexus between
antenna and tower is remote. Rather, in our view, their relationship is quite
proximate and inseparable for proper functioning of antenna.
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In this regard, we have noted the decision of the Gujarat High Court in
Industrial Machinery Manufacturers Pvt. Ltd. vs. State of Gujarat,
(1965) 16 STC 380 (Guj) wherein the Gujarat High Court held that humidifiers
which are used by the textile mills for improving the quality of the yarn
produced in general, and even though humidifiers were essentially electric
motors and not directly connected with the manufacturing process of yarns, yet
these were considered to be machineries for use in the manufacture of yarn.
The said finding by the Gujarat High Court was based on the essentiality of the
humidifiers. By applying the same principle in the present case, towers and
PFBs though themselves are not electrical equipment, are essential for proper
functioning of antenna. Thus tower being essential to rendering of output
service of mobile telephony, these items certainly can be considered to be
"inputs" akin to antenna. Without the towers and the PFBs, there cannot be
proper service of mobile telecommunication. Hence, these certainly would come
within the definition of "input" under Rule 2(k)(ii).
11.12.5 What we have noted also is that the CESTAT rejected the plea of the
Assessee that towers and parts thereof are inputs under Rule 2(k) by observing
that the towers are admittedly immovable structures and hence ipso facto non-
marketable and non-excisable and these do not lead to manufacture of goods
and that towers and PFBs certainly are not used for providing mobile services.
By relying on Explanation-2 to Rule 2(k) which provides that input includes
goods used in the manufacture of capital goods which are further used in the
factory of the manufacturer, the CESTAT held that these items are not inputs.
However, in our view, invoking Explanation-2 is neither appropriate nor
necessary as sub-clause (ii) of Rule 2(k) itself clearly provides that "input"
means 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. Even though tower and the PFBs are not electrical items/equipment in
the sense that these do not transmit signals, yet these are indispensable for the
effective functioning of antenna by which the radio signals are received and
transmitted and accordingly, used for providing the mobile telephonic services
to the subscribers. Thus, towers and PFBs, though are not electrical equipment
for transmission of signals, yet these are used for transmission of signal by the
antennas. Therefore, there can be no denying of the fact that there is a close
proximity and nexus between their functioning and the ultimate transmission of
radio signals which is the output service rendered by the MSPs. Hence, the view
of the CESTAT which has not been disturbed by the Bombay High Court does
not commend our acceptance.
11.12.6 Having held that the tower and pre-fabricated buildings (PFBs) are
"goods" and not immovable property and since these goods are used for
providing mobile telecommunication services, the inescapable conclusion is that
they would also qualify as "inputs" under Rule 2(k) for the purpose of credit
benefits under the CENVAT Rules."
13. In view of above pronouncement by the Hon'ble Supreme Court in M/s.
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Bharti Airtel Ltd. Vs. The Commissioner of Central Excise, Pune] (supra),
the C.Ex. App. No.7/2019 preferred on behalf of the appellant M/s. Bharti Airtel
Ltd. is allowed and the impugned judgment dated 30.10.2018 passed by the
CESTAT in Appeal No.ST/166/2009 and the order dated 31.03.2009 passed by
the Commissioner of Central Excise, Guwahati in Order-in-Original
No.04/COMMR/ST/2009 are set aside.
Resultantly, C.Ex. App. No.11/2019, preferred on behalf of the Revenue,
is dismissed.
14. Revenue is directed to refund the amount of Rs.33,78,610/-, deposited
by the appellant M/s. Bharti Airtel Ltd., pursuant to the interim order dated
20.05.2019 passed by this Court in I.A.(Civil) No.1689/2019 in C.Ex.App.
No.7/2019, along with the interest as applicable in accordance with law.
JUDGE CHIEF JUSTICE
Comparing Assistant
