CESTAT allows Vodafone to claim CENVAT Credit on tower and prefabricated buildings

CESTAT allows Vodafone to claim CENVAT Credit on tower and prefabricated buildings

Sets aside the order passed by the tax commissioner

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Vodafone is entitled to claim the Central Value Added Tax (CENVAT) credit on towers, tower materials and prefabricated buildings and shelters.

The two-member bench of Justice Dilip Gupta (president) and P.V. Subba Rao (technical member) observed that Vodafone was entitled to a tax credit, as the items in the dispute were 'capital goods.'

The appellant, Vodafone Mobile Services Limited, challenged the order passed by the tax commissioner adjudicating the 12 show-cause notices. It confirmed the denial of CENVAT credit on inputs, input services, and capital goods used by Vodafone for the provision of telecommunication services.

Under the CENVAT Credit Rules, 2004 and the Finance Act, 1943 and penalties under the 2004 Rules and Sections of the Finance Act, the demand for CENVAT credit is confirmed, along with interest

The appellant provides telecommunication services to customers and business support services to other telecom service providers. It claimed service tax liability on it. As a provider of output services, the appellant availed of the tax credit on inputs, input services, and capital goods.

The issue raised by the tax department was regarding the eligibility of the appellant to claim the tax credit on a tower, tower material, shelter, and input services from October 2004 to March 2012 and April 2014 to March 2015.

The order confirmed the denial of tax credit primarily on the ground that the subject goods, being attached to the earth, were immovable. Thus, were not used for providing output services. The commissioner relied on the February 2008 circular of the board. He held that the goods and services were received at the cell sites and not at the registered premises, therefore, the tax credit was not admissible.

The appellant submitted that the towers were not immovable structures. They could be moved around from one place to another. The mode of their installation was completely different from that of the construction of a civil structure. The only activity of a civil construction nature was the foundation for the tower.

The appellant further apprised that the main legs, called L-angled metal pieces, were fixed to the foundation stubs/anchor bolts, and joined with bracing members to form the structure. The tower was formed by connecting these metal pieces, tightened with nuts and bolts, which could be unfastened. The dismantled tower could then be transported to and reassembled at another location. The attachment of a tower with nuts and bolts (to provide stability and functionality) did not qualify as 'attached to the earth.'

But the tax department contended that as the capital goods were not received at the registered premises, the commissioner was justified in denying tax credit on the capital goods.

Importantly, in the General Clauses Act, 1897, the expression 'movable property' means property of every description, except immovable property. Standing timber, growing crops, or grass would not be considered 'movable property.' The Act provides that 'immovable property' includes land, benefits arising out of the land, and 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 1897 Act.

Thus, the tribunal set aside the order passed by the commissioner, observing that the entire tower and shelters were fabricated in the factories of the respective manufacturers and supplied in CKD condition. They were merely fastened to the foundation to make it wobble-free and ensure stability. They could be unbolted and reassembled without any damage in a new location.