TMI Blog2021 (9) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court rendered in Bharti Airtel was considered by the Delhi High Court in Vodafone Mobile Services and it was distinguished as is clear from paragraph 48 of the judgment having held that [ 2018 (11) TMI 713 - DELHI HIGH COURT] It is, therefore, considerd appropriate to follow the decision of the Delhi High Court in Vodafone Mobile Services. The appellant would, therefore, be entitled to claim CENVAT credit on tower/tower materials and pre-fabricated buildings/shelters. Correct availment CENVAT credit on capital goods - whether the appellant had utilized more than 50% of the credit on capital goods during the Financial Year 2005- 2006 because if the appellant had not utilised more than 50% of the credit on capital goods , it would not be liable to pay interest or penalty? - HELD THAT:- This issue was decided in favour of the appellant in Satish Industries [ 2012 (9) TMI 383 - BOMBAY HIGH COURT] where it was held that If the credit of the subsequent financial year wrongfully taken in the initial financial year if not utilized till the commencement of the subsequent financial year, then no prejudice is caused to the Revenue and the decision of the Tribunal de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments: Mobile Switching Centre (MSC) Base Station Control (BSC) Base Transceiver Station (BTS) Microwave Radio Station Tower Shelters Computer/Software printer. 3. The appellant claims that for the purpose of setting up, operation and maintenance of the telecom network throughout the country, it set up Mobile Towers and Shelters. The GSM network is basically composed of three broad systems namely, the network subsystem, the radio subsystem, and the operation support subsystem. GSM provides not only air interface, but also the main interfaces that identify different systems. The operation and transmission system requires radio antennas to transmit and receive radio signals. The radio signals have to be beamed at a particular height so that the waves can travel without any hindrance from the high rise buildings, big trees and mountains. The cellular operators, therefore, have to install a cell site for catering to its cellular coverage inside public areas. This cell site comprises of a tower, shelter, electrical setup and other electronic related equipments. Microwave antennas and radio antennas are mounted on the towers. A tower consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal goods in terms of rule 2 (a) of the Credit Rules does not include goods falling under Chapter 72 and 73 and Tower/Tower materials cannot be considered as components/spares and accessories of the capital goods; that the angles, channels and beams, prima facie, cannot be treated as inputs; that the angles, channels, beams etc., are used to fabricate the tower and the activity of erection of towers does not amount to manufacture as the tower is in the nature of immovable fixture; and that the tower in itself is not treated as excisable goods and hence not entitled to be treated as input for the purpose of availing CENVAT credit. 8. The appellant filed a detailed reply to the show cause notice on 22.07.2008 rebutting the allegations levelled against it on the grounds that the proposal to disallow CENVAT credit on capital goods for the period September 2004 to April 2007 is time barred; that the audit was conducted in the company by the audit team and the appellant was not informed that it was not eligible to take credit on capital goods; that a cell site of a cellular operator consists of antennae which receives and transmits signals so as to facilitate the output service of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed only to the extent of 50% of the CENVAT credit on capital goods available; v. The availability of credit on towers, angles, channels, beams and shelters have always been a subject matter of dispute/ litigation and accordingly, the extended period of limitation cannot be made applicable in cases of such interpretational nature. There was a conflict of opinion on the said issue which was ultimately addressed by a Larger Bench of the Tribunal in Tower Vision India Pvt. Ltd. vs. Commissioner of Central Excise, Delhi [ 2016 (42) S.T.R. 249 (Tri. LB) ] . It is a settled position that when a matter is referred to a Larger Bench to resolve conflict of opinion, extended period of limitation is not invokable; vi. Since the demand itself is not sustainable, no interest will be payable in the instant case; and vii. Since no mens-rea or suppression can be associated with availment of credit in the instant case, penalty is to be set aside. 11. Shri P. Rama Holla learned Authorized Representative appearing for the Department however, supported the impugned order and made the following submissions: i. Availment of CENVAT credit claimed on the items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hannels, tower/tower materials and pre-fabricated shelters on the ground that the said items do not fall under rule 2(a) of the Credit Rules and also on the ground that they do not qualify as accessories or components. 16. To appreciate this submission, it would be necessary to reproduce rule 2(a) of the Credit Rules that defines capital goods . It is as follows: Rule 2. Definitions. In these rules, unless the context otherwise requires, - (a) capital goods means :- (A) the following goods, namely :- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85 , Chapter 90, heading No. 68.02 and sub-heading No. 6801.10 of the First Schedule to the Excise Tariff Act; (ii) pollution control equipment; (iii) components, spares and accessories of the goods specified at (i) and (ii); (iv) moulds and dies, jigs and fixtures; 9 (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; and (vii) storage tank, used- (1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (2) for providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production; (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 1. - The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever. Explanation 2. - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; (emphasis supplied) 20. Learned counsel also submitted that towers/shelters and parts thereof, at the time of their receipts were movable goods and, therefore, the appellant can take CENVAT c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced below: 13. This Court proposes to describe the main outline of parties submission on the first and principal issue and later, in respect of each question, analyse the rival arguments. Mr. V. Lakshmikumaran, Learned Counsel for the assessees argued that credit on towers and shelters and other materials cannot be denied on the ground of immovability. He cited Rule 3 of the Credit Rules to urge that credit is admissible on all inputs and capital goods which are received in the premises of service provider. In the present case, towers and shelters are received in the premises of service providers. Later, when the towers are embedded in earth, the eligibility of credit will not change. It was argued that credit of input services cannot be denied on the ground of immovability which is an irrelevant factor, because the character of the goods, and the purpose for which they are procured does not change; they remain goods. It was submitted that besides the duty paid, the documents clearly indicated the classification and, as such, the credit cannot be denied at the recipients end. 14. It was argued that towers and shelters, ipso facto , qualify as inputs . Rule 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vat credit has been clearly settled by the Bombay High Court in Bharti Airtel Ltd. (supra). The clear finding after elaborate analysis by the High Court was not deviated by any other Court or over-ruled by the Supreme Court. It was next argued that the Central Excise duty paid on MS Angles, Channels and pre-fabricated buildings are claimed as credit by the assessees. Such items have no direct nexus to the output service of either telecommunication service or business support service. It cannot be said that iron and steel articles are used for providing telecommunication service. It is the immovable tower which is used for providing telecommunication service or business support service. 18. Counsel argued that the C.B.E. C. by its Circular dated 4-1-2008 clarified that input of credit of service tax can be taken only if the output is a service liable to Service Tax or goods liable to excise duty. Since immovable property is neither service nor goods, no credit can be taken. Learned Counsel relied on the decision of the Supreme Court in Triveni Engineering Indus. Ltd. v Commissioner of Central Excise - 2000 (120) E.L.T. 273 (S.C.) and submitted that the applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e copies of the leave and license agreements, making it clear that the licensee has the right to add or remove the aforesaid appliances, apparatus, equipment etc. 37. On an application of the above tests to the cases at hand, this Court sees no difficulty in holding that the manufacture of the plants in question do not constitute annexation and hence cannot be termed as immovable property for the following reasons : (i) The plants in question are not per se immovable property. (ii) Such plants cannot be said to be attached to the earth within the meaning of that expression as defined in Section 3 of the Transfer of Property Act. (iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free. (iv) The setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. 38. A machine or apparatus annexed to the earth without its assimilation by fixing with nuts and bolts on a foundation to provide for stability and wobble free operation can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvenience or effectiveness of something else. An accessory is an article or device that adds to the convenience or effectiveness of but is not essential to the main machinery. It was highlighted during the hearing of the appeals that the towers are structures installed to support GSM and microwave antennae. These antennae receive and transmit signals and are used for providing output service. Without them, the antennae cannot be installed high above the ground and cannot receive or transmit signals. Therefore, the towers too have to be considered as essential component/part of the capital goods, namely BST and antennae. Further, BTS is an integrated system and each component in the BTS, have to work in tandem to provide cellular connectivity to phone users and to provide efficient services. In the facts of the present case, it is evident that the towers form part of the active infrastructure as the antennae cannot be placed at that altitude to generate uninterrupted frequency. Further, these shelters are accessories for the placement of various BTS equipment and other items for it to remain in a dust-free, ambient temperature. 47. From the foregoing discussion, clearly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-fabricated shelters form an essential in the provision of telecommunication service. The CESTAT - in the opinion of this Court - failed to appreciate that it is well settled that the word used should be understood in a wide sense, so as to include passive as well as active use. The towers in CKD condition are used for the purpose of supplying the service and therefore, would qualify as inputs . There is actual use of the tower and shelters in conjunction with the Antenna and the BTS equipment in providing the output service, which also includes provision of the Business Support Service. The CESTAT has failed to appreciate that the towers and the parts thereon and the prefabricated shelters are inputs, in accordance with the provisions of Rule 2(k) of the Credit Rules. The CESTAT has erred in holding that there is no nexus between the inputs and the output service. The CESTAT also failed to consider the decision of the AP High Court in case of M/s. Indus Towers Ltd. v. CTO, Hyderabad - (2012) 52 VSR 447, which clearly ruled that the towers and shelters are indeed used and are integrally connected to the rendition of the telecommunication services. (emphasis suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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. Further the appellants contention that they were entitled for credit of the duty paid as the Base Transreceiver Station (BTS) is a single integrated system consisting of tower, GSM or Microwave Antennas, Prefabricated building, isolation transformers, electrical equipments, generator sets, feeder cables etc. and that these systems are to be treated as composite system classified under Chapter 85.25 of the Tariff Act and be treated as capital goods and credit be allowed, also 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 ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to manufacturing activity and pertains to goods used in relation to manufacture of final product or any other purpose within the factory of production. Sub-clause (ii) has been referred to as relevant by the appellant as the same pertains to goods except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing 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 Central Excise Tariff Act and hence being capital goods used for providing cellular service falling under Rule 2(a)(A)(iii) as part of capital goods falling under Rule 2(a)(A)(i) towers become accessories of antenna and should be held as capital goods for availing of credit of duty paid. The argument at the first blush appeared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Delhi High Court in Vodafone Mobile Services and the Bombay High Court in Bharti Airtel Ltd. It, therefore, needs to examined as to which of these two decisions should be relied upon in this appeal, which is being decided by the Bangalore Bench of the Tribunal. 32. A Lager Bench of the Tribunal consisting of five Hon ble Members in Collector of Central Excise Chandigarh vs. Kashmir Conductors [ 1997 (96) E.L.T. 257 (Tribunal) ] decided which High Court has to be followed when different High Courts have taken conflicting views on a proposition of law and the observations are: 10. The question as to how the Tribunal should proceed in the face of conflicting decisions of High Courts has been considered in M/s. Atma Steels P. Ltd. and others v. Collector of Central Excise, Chandigarh reported in l984 (17) E.L.T. 331 wherein the Larger Bench consisting of five Members held that, in view of its All India jurisdiction and peculiar features, the Tribunal cannot be held bound to the view of any one of the High Courts, but has the judicial freedom, to consider the conflicting views, reflected by different High Courts, and adopt the one considered more appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 33. It would be seen from the aforesaid decision of the Larger Bench of the Tribunal that when a Jurisdictional High Court has not expressed any view in regard to the issue and conflicting views have been taken by High Courts, other than the Jurisdictional High Court, then the Tribunal will be free to formulate it own view in the light of the decision of the Larger Bench of the Tribunal in M/s. Atma Steels P. Ltd. and Others vs. Collector of Central Excise, Chandigarh [ 1984 (17) E.L.T. 331 ] . In the said decision rendered in Atma Steels, the Tribunal observed that it would have the judicial freedom to consider the conflicting views reflected by different High Court and adopt the one it considers to be more appropriate to the facts of the case before the Tribunal. 34. In the present case, the judgment of the Bombay High Court rendered in Bharti Airtel was considered by the Delhi High Court in Vodafone Mobile Services and it was distinguished as is clear from paragraph 48 of the judgment that has been reproduced above. In this connection the Delhi High Court had also placed reliance upon a later decision on the Supreme Court in Solid and Correct Engineeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but still the Commissioner held that against the credit of ₹ 13,60,54,686/-, the appellant was entitled to take CENVAT credit of only 50% i.e. ₹ 6,80,27,343/- on capital goods during the year 2005-2006 and, therefore, for the balance credit of ₹ 6,80,27,343/-, the appellant was liable to pay interest and penalty after April 01, 2006. 40. The issue, therefore, is whether the appellant had utilized more than 50% of the credit on capital goods during the Financial Year 2005- 2006 because if the appellant had not utilised more than 50% of the credit on capital goods , it would not be liable to pay interest or penalty. This issue was decided in favour of the appellant by the Bombay High Court as well as the Karnataka High Court. 41. In Satish Industries, the Bombay High Court observed as follows: 3. On perusal of the order passed by the Commissioner (Appeals) as also CESTAT, it is seen that the said authorities have not upheld the action of the assessee in availing 100% of the credit in the initial year but have held that by the time the appeal was heard the initial financial year being over in addition to the 50% credit of the initial year, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment. The assessee uses the credit to make payment of excise duty on excisable product. Instead of paying excise duty, the cenvat credit is utilized, thereby it is adjusted or set off against the duty payable and a debit entry is made in the register. Therefore, this is a procedure whereby the manufacturers can utilise the credit to make payment of duty to discharge his liability. Before utilization of such credit, the entry has been reversed, it amounts to not taking credit. Reversal of cenvat credit amounts to non-taking of credit on the inputs. 21. Interest is compensatory in character, and is imposed on an assessee, who has withheld payment of any tax, as and when it is due and payable. The levy of interest is on the actual amount which is withheld and the extent of delay in paying tax on the due date. If there is no liability to pay tax, there is no liability to pay interest. Section 11AB of the Act is attracted only on delayed payment of duty i.e., where only duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person liable to pay duty, shall in addition to the duty is liable to pay interest. Section do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the duty on the date it became due. Without the liability to pay duty, the liability to pay interest would not arise. The liability to pay interest would arise only when the duty is not paid on the due date. If duty is not payable, the liability to pay interest would not arise. (emphasis supplied) 43. In view of the specific finding recorded by the Commissioner in the impugned order that though the appellant had taken credit of ₹ 13,60,54,686/- during the year 2005-2006, but the appellant had utilized only half the amount i.e. ₹ 6,80,27,343/-, the appellant would not be liable to pay interest or penalty on the balance amount since it was not utilised by the appellant, in view of the aforesaid two decisions of the Bombay High Court and the Karnataka High Court in Satish Industries and Bill Forge Pvt. Ltd. Invocation of Extended Period 44. The last submission advanced by learned counsel for the appellant is on the invocation of the extended period contemplated under the proviso to section 73(1) of the Finance Act. The Commissioner held that the extended period was correctly invoked by the Department since there was suppression of facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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