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Informist, Wednesday, Nov. 20, 2024

 

--SC allows telecom cos CENVAT credit of duty on towers, other accessories 

--CONTEXT: SC hearing pleas by Bharti Airtel, Vodafone Idea and other cos 

 

NEW DELHI – In a relief for Bharti Airtel Ltd., Vodafone Idea Ltd. and others, the Supreme Court Wednesday held that telecom companies are entitled to central value-added tax credit of central excise duty paid on towers, their parts, green shelter, printers and office chairs. With this judgement, the apex court rejected the Bombay High Court's 2014 ruling that towers and green shelter were "immovable property", and hence did not qualify as "capital goods" or "inputs" as defined under the Cenvat Credit Rules, 2004. The court favoured the view of the Delhi High Court in 2018, which said that companies can avail central value-added tax credit on telecom towers and other accessories. 

 

Telecom companies, which were providers of cellular telephone services, were paying applicable service tax. The companies availed central value-added tax credit on excise duty paid on towers, their parts, shelters, and prefabricated buildings purchased by them and being used for providing output services. The credit so availed was utilised for payment of service tax on the output telecom services.

 

In 2006, the excise department issued a show cause notice to Bharti Airtel, noting that the company had wrongly taken and utilised central value added tax credit in contravention of the provisions of Rule 2(a)(A) of Cenvat Credit Rules, 2004. In the notice, Airtel was called upon to show why the central-value added tax credit taken by them and subsequently utilised by them should not be recovered. The notice also asked why a penalty should not be imposed on the company and questioned about the recovery of interest. 

 

In reply to the show-cause notice, Bharti Airtel said that the towers and their parts were 'capital goods' and credit was admissible on these also as 'inputs'. As regards the prefabricated buildings, Bharti Airtel stated that they are eligible for capital goods credit, while in any case being eligible for input credit. 

 

The Commissioner of Central Excise, Pune, held that Bharti Airtel had wrongly availed of credit under provisions of Rule 14 of the Credit Rules read with Section 73 of the Finance Act, 1994. The commissioner observed that the towers, its parts and other systems have been treated as a "composite system" classified under Chapter 85.25 of the Tariff Act and that the company's contention that these systems should be treated as 'capital goods' and credit be allowed, could not be accepted. This case went to the Customs, Excise and Service Tax Appellate Tribunal and the Bombay High Court, which favoured the commissioner's ruling. Similar cases were also filed in the Delhi High Court, whole ruling contradicted that of the Bombay High Court. Consequently, the case moved to the top court.  

On Tuesday, shares of Bharti Airtel ended 0.8% lower at INR 1,525.50, and those of Vodafone Idea ended 2.1% lower at INR 7.10 on the National Stock Exchange.  End

 

Reported by Surya Tripathi

Edited by Tanima Banerjee

 

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