GTL Infrastructure LTD. Vs. Commissioner Of Service Tax, Mumbai (2014-TIOL-1768-CESTAT-MUM)

Facts: Appellant is engaged in providing ‘Passive Telecommunication’ services to various Cellular Telecom operators, classifiable as ‘Business Auxiliary Service’. They were taking Cenvat Credit on Towers/BTR cabins as capital goods. The Revenue contended that since the goods (towers) manufactured by appellant gets attached to the earth and become immovable goods, the same is not excisable goods and hence cannot be treated as Capital goods. The Appellant then pleaded that if these are not capital goods the same maybe treated as inputs used for providing output service. The Appellant manufactured capital goods which were not sold but rented and used for providing output service. Cement and Steel were used in construction of towers and Appellate wanted to enjoy Cenvat credit on such Cement and Steel. The Revenue, relying on the case of Bharti Airtel Ltd.1, Circular No. 137/315/2007-CX-4 dt. 26.02.2008 and Explanation-2 of Rule 2(k) contended that cement and steel cannot be considered as inputs.

The Mumbai Tribunal in the case of Bharti Airtel Ltd.1 had disallowed credit on towers on the ground that towers being gigantic immovable structures used for support of capital goods (Transmission Devices). Cenvat credit on towers and parts thereof is not available to cellular phone service provider as clarified vide Circular No. 137/315/2007-CX-4. Further, Revenue contended that as per Rule-2 of Cenvat Credit Rules, 2002, cement and steel are exclusively excluded from the definition of input.

Held: The Hon’ble Mumbai Tribunal in the given case held that the case of Bharti Airtel Ltd. and Circular No. 137/315/2007-CX-4 dt. 26.02.2008 is applicable to Cellular telecom service provider. In the instant case, the Appellant was a ‘Passive Telecom’ service provider taxable under the category of ‘Business Auxiliary Service’. The Hon’ble Tribunal also analyzed Explanation 2 of the definition of inputs which includes input used in the manufacture of capital goods which are further used in the factory of the manufacturer and held that the said explanation was specifically applicable to manufacturer and cannot be extended to service provider. The Appellant being a service provider, clause (ii) of the definition of input is applicable which includes all goods used for providing an output service and does not provide any restriction on considering cement and steel as inputs. Extending the aforesaid, cenvat credit on cement and steel used in the manufacture of tower was allowed to the Appellant.

As per current scenario

The definition of Input under Rule 2(k) of CCR rules, 2012 has been changed to include all goods used for providing output service and excludes any goods- used for construction or execution of works contract of a building or civil structure or a part thereof; or laying structures/foundation for support of Capital Goods or manufacture of any capital goods not used in the manufacture of final product.

In the above stated case, assessee is himself manufacturing tower which is attached to the earth and becomes immovable goods. Thus, the same is not excisable and hence cannot be treated as Capital goods. Further, towers are not covered under the definition of ‘Capital goods’. Also, the appellant is providing pure ‘Business Auxiliary Service’ and not works contract service. Therefore, Appellant would be eligible to claim cenvat credit under existing provision too.

1. Bharti Airtel Ltd. Vs. Commissioner of Central Excise, 2012-TIOL-209-CESTAT-MUM

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