Cenvat Credit on Cell Towers, Prefabricated building, printer etc used in providing Sellular Telephone services

PJ/Case Laws/2012-13/1032

Cenvat Credit on Cell Towers, Prefabricated building, printer etc used in providing Sellular Telephone services - admissibility of

Case: M/S BHARTI AIRTEL LTD. V/S COMMISSIONER OF CENTRAL EXCISE, PUNE

Citation: 2012 –TIOL-209-CESTAT-MUM

Issue:- Whether cenvat credit on Cell Towers, prefabricated building, printer, office chair used in providing cellular telephone services is admissible?

Brief Facts:- The appellant is engaged in the business of providing cellular telephone service taxable under section 65 of the Finance Act, (Act No. 32 of 1994). For paying service tax on this output service, they can utilise cenvat credit of the duty paid on capital goods and inputs and of the service tax paid on input services provided such “capital goods” , “inputs” and “ input services” would fall within the ambit of the respective definitions under Rule 2 of the CENVAT Credit Rules , 2004. Four show-cause notices were issued by the department mainly to deny cenvat credit to the appellant on certain items which were claimed, by the latter, to have been used for providing their output service.

Appellant’s Contention:- The contention made by the appellant was regarding availment of cenvat credit on CELL SITES, TOWERS, PREFABRICATED BUILDING, PRINTER, OFFICE CHAIRS.

The appeal made is that a CELL SITE comprising GSM and MW antennas supported by the tower and BTS and other equipments housed in the PFB is an integrated system loosely known as BTS and classifiable under heading 85.25 of the CETA Schedule. It is submitted that the tower and parts thereof are parts of the integrated system and hence eligible capital goods . In both the appeals the appellant has claimed support in the above context from the following decisions:-

(i) INDIAN COPPER CORPORATION LTD. VS. COMMISSIONER OF COMMERCIAL TAXES . [ 1965 (16) STC 259 (SC) ]

(ii) J.K.COTTON SPINNING AND WEAVING MILLS CO.LTD. VS. STO [1997 (91( ELT 34 (S.C)]

(iii) JAWAHAR MILLS LTD. VS. CCE [1999 (108) ELT 47 (TRI-LB)]

(iv) INDUSTRIAL MACHINERY MANUFACTURERS PVT.LTD. VS. STATE OF GUJARAT.[1965 (16) STC 380 (GUJ)]

In respect of PFB, the appellant points out that CCE, Meerut-I vide Order-in-Original no. 4-5/commissioner/MRT-I/07 held that , as a part of BTS which was eligible capital goods , PFB was essential in providing output service and therefore the duty paid thereon would be available as credit to the telecom operator.

Alternatively, the appellant has contended that the tower and parts thereof and the PFB would also quantify as ‘inputs’ used for providing output service. It is based on sub-clause (ii) of clause (k) of Rule 2 (definition of “input”) of the cenvat Credit Rules. The relying decisions are:

(i) CCE VS. MODI RUBBER LTD. [2000 (119) ELT (TRI-LB)]

(ii) CCE VS.ZENITH PAPERS [2002 (146) ELT 518(P&H)]

Office chairs have been claimed to be ‘inputs’ as, in the appellant’s view, these were indirectly used , if not directly, for providing the output service. In this connection, the following decisions have been relied on:

(i) COMMISSIONER VS.HOTEL LEELA VENTURE LTD.[2003(158) ELT 777(TRI-MUM)]

(ii) ORACLE INDIA P. LTD. VS. CC [2006 (200) ELT 545 (TRI-BANG)]

(iii) CC VS. ADITI TECHNOLIGIES (P) LTD. [2003 (151) ELT 343 (TRI)]

(iv) DSL SOFTWARE VS. CC [2005 (181) ELT 250 (TRI-BANG)]

(v) AZTEC SOFTWARE TECHNOLOGY SERVICES LTD. VS. CC [2005 (189) ELT 301 (TRI-BANG)]

Printers which are classifiable under Chapter 84 of the CETA Schedule and are used for printing bills for subscribers have also been claimed to be ‘capital goods’.

The penalties have been challenged on the ground that the appellant did not have any intention to evade payment of duty and that no penalty was liable to be imposed in a case like this involving a question of law on which divergent views could be taken as in the impugned order and in order-in-original no. 04-05 dated 31.01.2007 of CCE, Meerut-I. The penalty imposed under Rule 15(2) of the Cenvat credit Rules has been challenged on the further ground that the same cannot be imposed on a service provider like the appellant who is not a manufacturer.

The written submissions dt.16.06.2011 filed on behalf of the appellant relied on excerpts from certain technical books/articles such as the following:-

(i) DIGITAL TRANSMISSION SYSTEMS by DAVID R.SMITH

(ii) THE DVB-H HANDBOOK, THE FUNCTIONING PLANNING OF MOBILE TV by JYRKI T.J.PENTTINEN,PETRA JOLMA, ERKKI AALTONEN,JANI VORE.

(iii) WIRELESS COMMUNICATIONS AND NETWORKS by WILLIAM STALLINGS

(iv) CELL PHONE TOWERS AS VISUAL POLLUTION, an essay by JOHN COPELAND NAGLE

Respondent’s Contention:- The learned JCDR made the following submissions:-

1) The towers were assembled at site and ,upon assembly, they become immovable property .Any immovable property was not covered by the definition of ‘capital goods’ and therefore the erected towers could not be considered as capital goods falling under clause (i) of Rule 2(a)(A)
Of the cenvat credit rules, 2004. In this connection , the tribunal’s larger bench decision in VANDANA GLOBAL case was relied on.

2)PFBs are classifiable under heading 9406 in chapter 94 of the CETA Schedule and this chapter is not specified in clause(i) of Rule 2(a)(A) which defines ‘capital goods’. Therefore components / parts of such PFBs would also not be considered as capital goods under clause (iii) of the said rule. PFB and its parts cannot be considered as inputs either, as the connection between these items and the output service is too remote.

3) Chairs and printers being office equipments/appliances have been excluded from the ambit of the definition of ‘capital goods’. Chairs, classifiable under Chapter 94 which is not specified in the definition of capital goods, cannot, in any case, be treated as capital goods. Chairs and printers cannot also be considered as inputs as they cannot be said to have been used for providing the output service.

The learned JCDR also referred to the case law cited by the learned Counsel and sought to distinguish the cited cases:

(i) RAJASTHAN SPINNING AND WEAVING MILLS
(ii) ISPAT INDUSTRIES
(iii)LLOYDS METALS & ENGINEERING LTD.
(iv) HUTCHISON MAX TELECOM PVT. LTD.
(v) VAM ORGANIC CHEMICALS LTD,
(vi) MUNDRA PORT & SPECIAL ECONOMIC ZONES LTD.V/S.CCE, RAJKOT

Reasoning of Judgment:- It is ordered as under:-

1)The subject items are neither ‘capital goods’ under Rule 2(a) nor ‘inputs’ under Rule 2(k) of the cenvat credit rules, 2004 and hence cenvat credit of the duty paid thereon is not admissible to the appellant for the relevant period;

2)The cenvat credit taken on the said items and utilised by the appellant is recoverable subject to limitation

3)The limitation issue is remanded to the Commissioner for careful consideration and decision;

4) The question whether, on the facts and circumstances of this case, the appellant is liable to be penalised under Rule 15 of the cenvat credit rules,2004 and , if so, to what extent is also remanded to the commissioner for fresh consideration and decision;

5)The appellant shall be given a reasonable opportunity of being head on the remanded issues.

Decision:- Both the appeals are disposed of in the aforesaid terms.

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PJ/Case Laws/2012-13/1032

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