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2015 (9) TMI 583 - BOMBAY HIGH COURT

2015 (9) TMI 583 - BOMBAY HIGH COURT - 2015 (40) S.T.R. 422 (Bom.) , 2015 (324) E.L.T. 434 (Bom.) , [2016] 96 VST 216 (Bom) - 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. Thi .....

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l Excise Appeal No. 126 of 2015, notice of Motion No. 868 of 2015, Central Excise Appeal No. 127 of 2015, Notice of Motion No. 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 Financ .....

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r providing output service. In both the Appeals, the Appellant and the Respondent are one and the same and the questions of law, 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 .....

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used for providing output services should not be embedded in earth? (b) Whether the Tribunal has erred in law in interpreting 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 appre .....

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ppellate Tribunal? (e) Whether the Tribunal committed a fundamental error in not appreciating that shelter / parts of tower and 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 tow .....

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le Appellate Tribunal erred in not appreciating that for the purposes of availing credit under the CENVAT Credit Rules, towers (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 .....

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the Tribunal erred in law in appreciating that there is no embargo under Rule 2(k) of the CENVAT Credit Rules, 2004 in relation 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 un .....

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helters under common trade parlance are regarded as 'goods' and, therefore, credit will be allowed on such Towers and 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 consequentl .....

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. Such equipments are essential and an integral part of the telecom service delivery across the world and is the backbone of the 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 sys .....

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iability. The Appellant had inter alia availed of CENVAT credit for duty paid on towers (in CKD/SKD form), parts of towers, shelter / 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 p .....

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therein alongwith interest and penalty. As far as the demand to the extent of ₹ 45,05,15,200/- was concerned, the same 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 16 .....

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perties, attachment thereof to the land has to be for the permanent beneficial enjoyment of the land and should not have a separate 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 t .....

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9; and other goods' other than their treatment in relation to their use in manufacture. According to Mr. Salve, there is no 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 .....

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ld not by itself, make them lose their character as goods', was the submission of Mr Salve. 9. Mr Salve, in his usual fair 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 provid .....

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nding be rendered thereon. 10. On the other hand, Mr Jetly, learned counsel appearing on behalf of the Respondent, submitted that 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 f .....

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n both the Appeals as well as the common order impugned therein. It is to be noted that in Bharti Airtel's case, the identical 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 part .....

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he appellate Tribunal was correct and justified in holding that tower would not qualify as 'part' or 'component' 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 applicati .....

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by the Appellants in knocked down condition (CKD) and were used for providing telecom services and hence these goods qualify 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, e .....

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e) that capital goods viz. Antenna and BTS are fitted into the tower and shelter to provide telecommunication services and therefore, 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 .....

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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-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 t .....

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dit Rules so as to be capital goods. The goods in question would not 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. *************** 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 .....

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of the goods specified at sub clauses (i) and (ii) which are used either in the factory for manufacture of final products but 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. Fu .....

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is not acceptable. It is clear that each of the component had independent functions and hence, they cannot be treated and classified 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 heading .....

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goods and hence the appellants cannot claim the credit of duty paid on these items. Even applying the ratio of the judgments as 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 und .....

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d in or in relation to manufacture of final products or for any other purpose, within the factory of production, and as provided 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 .....

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iding any output service. Tower and parts thereof are fastened and are fixed to the earth and after their erection become immovable 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 Centr .....

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y or a part of any goods would necessarily mean such accessory or part which would be utilized to make the goods a finished product 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 Del .....

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ds fall within the ambit of the definition of capital goods as defined under Rule 2(a)(A) of the Credit Rules. The contention 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 th .....

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ons that it did. Mr Salve, despite all the finesse at his command, was unable to persuade us to hold that the decision in Bharti 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 Cour .....

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e misconstrued and / or misinterpreted, the only recourse available to it would be to refer it to a larger Bench. In the present 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 .....

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so correct to state that even if a particular issue has not been agitated earlier or a particular argument was advanced but was 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 .....

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