Commissioner, Central Goods And Services Tax And Central Excise vs. M/S Bharti Airtel LTD.

Facts

M/s. Bharti Airtel Ltd. (the appellant) received a show cause notice alleging wrongful CENVAT credit on tower parts and shelters, amounting to Rs.14,93,15,569. The Excise Department contended these were not capital goods or inputs and lacked nexus with telecom services. The Commissioner disallowed the credit, charged interest, and imposed a penalty. The CESTAT partly allowed the appeal, setting aside demands beyond the normal limitation period and penalties, but confirming the demand with interest within the normal period. Both Bharti Airtel and the Revenue filed appeals before the High Court. The High Court noted that the Supreme Court had already pronounced judgment on similar issues.

Held

The Court allowed the appeal filed by M/s. Bharti Airtel Ltd. (C.Ex.App. No.7/2019) and dismissed the appeal filed by the Revenue (C.Ex.App. No.11/2019). The Court relied on the Supreme Court's judgment in M/s. Bharti Airtel Ltd. Vs. The Commissioner of Central Excise, Pune, which held that mobile service providers could avail CENVAT credit on items like mobile towers and prefabricated buildings. The Supreme Court had ruled that towers and PFBs, though not electrical equipment themselves, are essential for the proper functioning of antennas and are indispensable for providing mobile telecommunication services. Therefore, they qualify as 'inputs' under Rule 2(k)(ii) of the CENVAT Credit Rules, 2004. The Court found that the towers and PFBs are 'goods' and not immovable property in this context. Consequently, the impugned judgment of the CESTAT and the order of the Commissioner were set aside. The Revenue was directed to refund Rs.33,78,610 deposited by Bharti Airtel, along with applicable interest.

Key Issues

1. Whether the CESTAT was correct in concluding that towers, shelters, and accessories used by the appellant for providing business support services are immovable property? (Question of law turning on the definition of 'immovable property' and 'goods' under relevant rules). 2. Whether the appellant is entitled to claim Cenvat Credit on towers and shelters as capital goods or inputs under Rule 2(a) or 2(k) of the Cenvat Credit Rules, 2004? (Question of law turning on the interpretation of 'capital goods' and 'inputs' under the Cenvat Credit Rules). 3. Whether the CESTAT erred in applying the nexus test with reference to MS angles and channels, when the appellant argued that towers, shelters, and accessories were supplied in CKD/SKD condition for providing services? (Question of mixed law and fact concerning the application of the nexus test). 4. Whether the appellant was justified in claiming Cenvat Credit under Rule 4(1) of the Cenvat Credit Rules, 2004, for excise duty paid by the manufacturer of towers and shelters after their receipt at tower sites? (Question of law concerning the entitlement to credit upon receipt of goods). 5. Whether the emergence of an immovable structure at an intermediate stage is a criterion for denying Cenvat Credit? (Question of law regarding the impact of a structure's immovability on credit eligibility). Petitioner's Arguments (Bharti Airtel): The appellant argued that towers, shelters, and accessories were essential for providing telecom services and should be considered 'inputs' or 'capital goods'. They contended the CESTAT's nexus test was flawed and that credit was rightly claimed under Rule 4(1). They also argued that the immovability of a structure at an intermediate stage should not preclude credit. Revenue's Arguments: The Revenue argued that towers and shelters were not inputs or capital goods, and that the activity of erection/fabrication did not amount to manufacture. They also raised issues regarding suppression of facts and the extended period of limitation.