SC holds CENVAT credit is eligible on mobile towers and pre-fabricated buildings

 This Tax Alert summarizes a recent ruling of the Supreme Court (SC) ^[1] on availability of CENVAT Credit on mobile towers and pre-fabricated buildings (PFBs) owned by mobile service providers (MSPs) and passive infrastructure support service providers.

Earlier, Bombay High Court (HC) ^[2] disallowed credit on the above items on the premise that the items do not qualify as "capital goods" or "inputs". Subsequently, Delhi HC ^[3] rendered a divergent ruling and allowed credit on the same. The matter reached SC.

The key observations of the SC are:

• Mobile towers are an essential part of the "Base Transceiver Station" (BTS) and antenna forming an integrated telecom system. It provides necessary stability for antennas and is crucial for the transmission and reception of radio signals.
• The attachment of towers to earth does not inherently classify them as immovable property. If the attachment is temporary, and the items can be dismantled without damage, they are treated as movable and hence, “goods”.
• Further, mobile towers and PFBs serve as accessories to antennas and BTS, which fall under "capital goods". Hence, such towers and PFBs are also to be treated as “capital goods”.
• Alternatively, under Rule 2(k) of CENVAT Credit Rules, 2004, "input" includes any "good" used to provide a taxable output service, with no additional conditions. Thus, items like towers and PFBs used in providing telecom services are "inputs”.

Basis above, SC set aside the ruling of Bombay HC and upheld the decision of Delhi HC, confirming that MSPs and other passive infrastructure support service providers are entitled to claim CENVAT Credit on mobile towers and PFBs.

Comments

• For pending cases under the erstwhile regime where CENVAT credit was reversed under protest, businesses may explore claiming refund of the same basis SC ruling.
• Under GST, ITC is not available on construction of immovable property except for plant and machinery. Further, telecom towers have been specifically excluded from the ambit of plant and machinery. Industry may now evaluate whether ratio of this ruling can be applied under GST to avail ITC.
• Analogy of the ruling may also be relevant for determining ITC eligibility on transmission towers, railway sidings, etc.