The Supreme Court has allowed the appeals by telecom operators as well as infrastructure companies and held that telecom operators now entitled to claim CENVAT credit on infrastructure.
The Apex Court has affirmed the Delhi High Court decision in Vodafone and overrules Bombay High Court decision in Bharti Airtel, on account of contrary opinions of Delhi High Court which allowed CENVAT credit and Bombay High Court which disallowed CENVAT credit.
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Delhi High Court’s Judgement
The Delhi High Court has held that the ‘permanency test’, as established by the Supreme Court in the case of Commissioner of Central Excise, Ahmedabad v Solid and Correct Engineering Works & Ors, is to be used to determine whether the equipment qualifies as immovable property or not. If the machinery or equipment is permanently fastened or embedded to the earth, it qualifies as immovable property. However, if the machine is fastened merely to provide a ‘wobble free operation’, it would not qualify as immovable property
In the present case, the entire tower and shelter is fabricated in the factory of the manufacturer and is supplied in a Completely Knocked Down (CKD) form. The equipment is fastened to the civil foundation for a ‘wobble free operation’ and to provide greater stability. A fixation which does not involve assimilation of the property and is necessary for a ‘wobble free operation’ cannot be considered as an immovable property by applying ‘permanency test’.
The tower / shelter may be unbolted and reassembled without any damage to any other location. There is no intent to annex the equipment to the earth permanently for the beneficial enjoyment of the land owner.
The Delhi High Court noted that the said Bombay High Court decision, which is pending appeal before the Supreme Court, is contrary to the Supreme Court’s decision in the case of Solid and Engineering Works). In view of the contradictory decisions it appears, that dispute will be finally resolved by the Supreme Court when it decides the appeal against Bharati Airtel
Bombay High Court
Bombay High Court decision in Bharti Airtel has held that the towers are immovable property and non excisable and hence, can neither be regarded capital goods so as to fall within the definition of ‘capital goods’ appearing in Rule 2(a) of the Credit Rules, nor can be categorized as ‘input’ applying Rule 2(k) of the Credit Rules.
The subject items are neither capital goods under Rule 2(a) nor inputs under Rule 2(k) of the Credit Rules and hence CENVAT credit of the duty paid thereon was not admissible to the appellants.