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Vodafone India Ltd. Versus The Commissioner of Central Excise, Mumbai II

2015 (9) TMI 583 - BOMBAY HIGH COURT

Availment of CENVAT Credit - duty paid on towers (in CKD/SKD form), parts of towers, shelters / prefabricated buildings purchased by them and used for providing output service - Held that:- Goods are neither ‘capital goods' as defined in rule 2(a)(A) of the CENVAT Credit Rules, 2004 and nor do they fall within the definition of ‘input' as defined in rule 2(k) thereof. This Court has further held that in any event the towers and parts thereof are in the nature of immovable property and are non-ma .....

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869 of 2015 - Dated:- 10-9-2015 - S. C. Dharmadhikari And B. P. Colabawalia, JJ. For the Appellant : Mr Harish Salve, Sr. Counsel i/b M/s Duttmenon Dunmorrsett For the Respondent : Mr Pradeep S Jetly with Mr Jitendra B Mishra JUDGMENT [ Per B. P. Colabawalia, J. ] 1. These Appeals, filed under section 35G of the Central Excise Act, 1944 read with section 83 of the Finance Act 1994, take exception to the final order dated 16th March, 2015 ("impugned order") passed by the Customs, Excis .....

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w, as framed, are also identical. The only difference between the two Appeals is the period for which the Appellant had availed of CENVAT credit and which was now being demanded and recovered from them under Rule 14 of the "CENVAT Credit Rules, 2004" r/w section 73 of the Finance Act 1994, alongwith interest and penalty. In these circumstances, both the Appeals are being disposed of, by consent of parties, by this common order and judgment. For the sake of convenience, we shall refer t .....

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Rule 2(k) of the CENVAT Credit rules 2004 which clearly provides that 'all goods' 'used' for providing any output service is eligible for credit and therefore, towers and prefabricated shelters which are received as goods ought to be allowed as credit for utilization under the CENVAT Credit Rules 2004? (c) Whether the Tribunal has erred in law in not appreciating that goods which do not fall under the definition of capital goods continue to fall under the definition of input and, .....

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d the tower would qualify as inputs under the scheme of the CENVAT Credit Rules 2004 which are integral to the provision of output service? (f) Whether in the facts and circumstances of the case, the Hon'ble Appellate Tribunal was correct and justified in holding that the Appellant was not entitled to credit of duty paid on tower parts / shelter on the ground that tower / shelter is 'immovable property' and hence, do not qualify as 'capital goods' on 'inputs' as defin .....

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(in CKD and SKD form) and parts of the towers were goods when received and credit was taken and it is immaterial whether the same were erected later? (i) Whether the Hon'ble Appellate Tribunal erred in not considering and appreciating the technical literature and evidence placed before it showing that both the towers and the shelters were capable of being shifted or moved and rendering perverse findings? (j) Whether in the facts and circumstances of the case, the Hon'ble Appellate Tribu .....

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on to the manner in which goods ought to be used for providing any output service and therefore, even upon installation as a part of an overall system they can qualify as inputs for rendition of output services? (m) Whether the Tribunal failed to appreciate that even the capital goods can fall under definition of 'inputs' and are, therefore, eligible for credit under Rule 2(k) of the CENVAT Credit Rules, 2004? (n) Whether the Tribunal failed to appreciate that the process of embedding th .....

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pre-fabricated buildings / shelters under the CENVAT Credit Rules, 2004 as either capital goods or inputs? (p) Whether the Tribunal failed to appreciate that Towers and pre-fabricated buildings / shelters in common trade parlance are known as parts of base station and are, therefore, liable to be classified under Chapter 85 of the Central Excise Tariff Act and consequently eligible for credit under the CENVAT Credit Rules, 2004? 3. To decide the present controversy, it would be necessary to refe .....

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he telecom service. Such infrastructure includes public switching equipment, transmission equipment and various customer premises equipment. At the heart of the whole infrastructure is the Base Transceiver Station (BTS) which facilitates wireless communication between the customers equipment (eg. mobile phones) and the main network. The general architecture of the BTS system involves various equipment such as antennae, towers, pre-fabricated buildings etc. and all these, in combination, are used .....

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elter / prefabricated buildings purchased by them and used for providing output service. 5. As the statutory authorities were of the view that the Appellant is not entitled to avail of CENVAT credit under the "CENVAT Credit Rules 2004", show cause notices were issued to the Appellant for the period from 2005-2006 to 2010-2011, the details of which are given at paragraph 11 of the Memo of Appeal. These show cause notices were replied to by the Appellant denying all the allegations set o .....

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was dropped on account of duplication in computation of two show cause notices dated 31.03.2009 and 22.04.2010 respectively. 6. Being aggrieved by this order of the Commissioner, the Appellant preferred an Appeal before the CESTAT under section 86 of the Act and also filed a stay application therein. This Appeal was disposed of by CESTAT by its judgment and order dated 16th March, 2015 inter alia confirming the order of the Commissioner (TAR), Mumbai. Being aggrieved by this order of CESTAT, the .....

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arate existence devoid of the land, was the submission of Mr. Salve. In support of this proposition, Mr Salve relied upon a decision of the Supreme Court in the case of Commissioner of Central Excise, Ahmedabad v/s Solid and Correct Engineering Works and others. (2010) 5 SCC 122. According to Mr Salve, in the present case, the said goods of the Appellant did not satisfy this test and therefore, could never be termed as immovable property. In this regard, he also invited our attention to the affi .....

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o difference in relation to the use of any goods' in relation to provision of output service. In this regard, he drew our attention to the definition of the words capital goods' and input' appearing in rule 2(a)(A) and rule 2(k) of the CENVAT Credit Rules, 2004 respectively. According to Mr Salve, in the facts of the present case, and looking to the definition of the word input', only two conditions need to be satisfied for the Appellant to avail of CENVAT credit. These are (a) t .....

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manner, pointed out to us a decision of a Division Bench of this Court in the case of Bharti Airtel Ltd. v/s Commissioner of Central Excise, Pune - III, 2014 (35) S.T.R. 865 (Bom.) to which one of us (S.C. Dharmadhikari J.) was the party. He submitted that though a Division Bench of this Court in Bharti Airtel's case has taken the view that the telecom service provider is not entitled to CENVAT credit for the duty paid on the said goods on the ground that it is immovable property and hence, .....

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hat the issues raised and the questions of law as projected in the Appeals, are squarely covered by the judgment of this Court in Bharti Airtel's case. He submitted that after lengthy arguments and considering the law on the subject, this Court has come to the conclusion that a telecom service provider is not entitled to credit of duty paid on towers (in CKD and DKD form), parts of towers, shelter / prefabricated buildings allegedly used by the Appellant for providing output service. He subm .....

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ical issue as the one canvassed before us, was raised before this Court. The substantial questions of law that were framed by this Court in Bharati Airtel's case are as under:- "1) Whether in the facts and circumstances of the case, the Appellate Tribunal was correct and justified in holding that the appellant was not entitled to credit of duty paid on tower parts, green shelter, printers and office chairs? 2) Whether in the facts and circumstances of the case, the Appellate Tribunal wa .....

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9; or 'accessory' of the capital goods i.e. antenna?" 12. On these questions of law, as framed, this Court at paragraph 16 noted the arguments canvassed on behalf of M/s Bharti Airtel Ltd. In a nutshell, and so far as they are relevant for our purposes, the arguments of the Appellants therein were as follows:- (a) The Tribunal has misinterpreted the application of CENVAT Credit Rules, 2004 in rejecting the Appellant's claim to avail credit of the duty paid on the towers and part .....

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as "inputs" in terms of rule 2(k) of the Credit Rules. Rule 2(k)(2) uses the words "all goods" which are "used for providing any "output service" and therefore, these goods completely fall within the purview of rule 2(k) so as to mean inputs; (c) that a combined reading of these definitions, read with rules 3 and 4 of the Credit Rules, entitle the Appellants to avail the credit of duty paid on purchase of these goods, and the Appellant's case was fully cove .....

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refore, they qualify as inputs under Rule 2(k); (f) that it is impossible to conceive that the telecommunication services can be provided without towers and shelters and that necessity or the functional utility test is required to be applied. 13. Several other arguments were also noted in paragraph 16 of Bharti Airtel's decision. Thereafter, this Court at paragraph 19 took note of the relevant provisions viz. the definition of the words 'capital goods' [Rule 2(a)(A)], 'input' .....

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rts thereof are in the nature of immovable property and are non-marketable and non-excisable and therefore, they cannot be classified as inputs' so as to fall within the definition of rule 2(k) of the CENVAT Credit Rules, 2004. The relevant portion of Bharti Airtel's decision reads thus:- "23. In the context of these definitions the contentions as raised by the appellant are required to be examined. The position of the goods in question vis-a-vis the plain application of the rules i .....

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are neither components, spares and accessories of goods falling under any of the chapters or headings of the Central Excise Tariff Schedule as specified in sub-clause (i) of the definition of capital goods. *************** 31. In the light of the aforesaid discussion we examine whether on the rules as they stand the appellants would be entitled to the credit of the duty paid on the item in question on the output service namely the cellular service. We may observe that a plain reading of the def .....

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does not include any equipment or appliance used in the office and those used for providing output service. Further in the CKD or SKD condition the tower and parts thereof would fall under the chapter heading 7308 of the Central Excise Tariff Act. Heading 7308 is not specified in clause (i) or clause (ii) of rule 2 (a)(A) of the Credit Rules so as to be capital goods. Further the Appellants contention that they were entitled for credit of the duty paid as the Base Transreceiver Station (BTS) is .....

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sified as single unit. It is clear that all capital goods are not eligible for credit and only those relatable to the output services would be eligible for credit. The goods in question in any case cannot be held to be capital goods for the purpose of CENVAT credit as they are neither components, spares and accessories of goods falling under any of the chapters or headings of the Central Excise Tariff Schedule as specified in sub-clause (i) of the definition of capital goods. Hence a combined re .....

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s relied upon by the appellants as observed above the said goods in the present context cannot be classified as capital goods. 32. As regards second contention of the appellants that the tower and part thereof, the PFB and the printers would also falls under the definition of input' as defined Rule 2(k) also cannot be sustained. The definition of inputs as defined under rule 2(k) includes all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol, used .....

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ed in sub-clause (ii) all goods except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service. Explanation (2) of sub-rule (k) is also which provides that input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer. A plain reading of the definition of input indicates that in the present context, clause (i) of Rule 2 (k) may not be of relevance as same per .....

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vable and therefore cannot be goods. 33. The alternative contention of the appellant is that tower is an accessory of antenna and that without towers antennas cannot be installed and as such the antennas cannot function and hence the tower should be treated as parts and components of the antenna. It is urged that antennas fall under chapter 85 of the schedule to the Central Excise Tariff Act and hence being capital goods used for providing cellular service falling under rule 2(a)(A)(iii) as part .....

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oduct or such articles which would go into the composition of another article. The towers are structures fastened to the earth on which the antennas are installed and hence cannot be considered to be an accessory or part of the antenna. The position in this regard stands fortified from the decision of the Supreme Court in the case of "Saraswati Sugar Mills vs CCE Delhi, (2011 (270) ELT 465) ". From the definition of the term input' as defined in 2 (k) of the Credit rules it is clea .....

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of the appellant that they are entitled for the credit of the duty paid towers and PFB and printers is defeated by the very wording of the definition of input. In any case towers and PFB are in the nature of immovable goods and are non-marketable and non-excisable. If this be the position then towers and parts thereof cannot be classified as inputs so as to fall within the definition of Rule 2(k) of the credit rules. We clarify that we are not deciding any wider question but restricting our conc .....

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ti Airtel's case requires a relook. The very provisions that were relied upon by Mr Salve, were considered and interpreted by the Division Bench in Bharti Airtel's case. Not only are those findings binding on us but we are in full agreement with the same. Once the very rules that have been relied upon by Mr Salve, are interpreted by the Division Bench of this Court, judicial discipline demands that this interpretation be followed by us. It is now quite well settled that an interpretation .....

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nt case, we see no reason to adopt this course of action. We are in full agreement with the reasoning given in Bharti Airtel's case and therefore, are unable to accept the submissions of Mr Salve that the aforesaid decision requires a relook. If for any reason, the Appellant is of the opinion that the decision in Bharti Airtel's case does not lay down the correct law, then the remedy to correct the same lies before a Superior Court. On the issue of a binding precedent, it would be apposi .....

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s not considered the said judgment does not lose its binding effect, provided that the point with reference to which an argument is subsequently advanced has actually been decided. The decision therefore, would not lose its authority "merely because it was badly argued, inadequately considered or fallaciously reasoned". The case must be considered taking note of the ratio decidendi of the same i.e. the general reasons or the general grounds upon which the decision of the court is based .....

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