Bharat Sanchar Nigam Limited vs. Commissioner, Central Excise And Customs

Facts

Bharat Sanchar Nigam Limited (BSNL), the appellant, availed CENVAT credit on tower materials, puff channels, shade & parts thereof, and pre-fabricated buildings during the period 2005-06 to 2007-08, amounting to Rs. 5,40,46,663. The revenue department opined that these items were neither capital goods nor inputs under the CENVAT Credit Rules, 2004, and disallowed a portion of the credit. BSNL also availed credit on goods not received/used by them, adjusted service tax without refunding customers, and availed credit from an unregistered input service distributor. A show-cause notice was issued, and the Commissioner confirmed a demand of Rs. 29,60,286 with interest and penalty. Both BSNL and the Revenue filed appeals before the CESTAT. The CESTAT held BSNL ineligible for the credit, allowing the revenue's appeal and dismissing BSNL's appeal, but revoked penalties due to BSNL being a public sector undertaking acting under a bona fide belief.

Held

The High Court allowed the appeals filed by BSNL (Tax Case Nos. 33 & 38 of 2018) and dismissed the appeal filed by the Revenue (Tax Case No. 132 of 2018). The Court relied on the Supreme Court's decision in Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune (2024 SCC OnLine SC 3374). The Supreme Court had held that towers and pre-fabricated buildings (PFBs) are 'goods' and not immovable property, and since they are used for providing mobile telecommunication services, they qualify as 'inputs' under Rule 2(k) of the CENVAT Credit Rules, 2004. The Court agreed with the Delhi High Court's conclusion and upheld the judgment in Vodafone (supra), dismissing the appeals that took a contrary view. Consequently, the issue regarding the eligibility for CENVAT credit on these items was decided in favour of BSNL. The Court did not explicitly address the issue of the extended period of limitation in its final decision, as the primary issue of credit eligibility was settled by the Supreme Court's precedent.

Key Issues

1. Whether, in the facts and circumstances, the Appellate Tribunal was correct in holding that the Appellant (BSNL) was not entitled to CENVAT credit of duty paid on tower materials, puff channels, shade & parts thereof, and pre-fabricated buildings materials, as they do not qualify as 'capital goods' or 'inputs' under the CENVAT Credit Rules, 2004? (Relates to Rule 2(a) and 2(k) of CCR-2004). 2. Whether the Appellate Tribunal was correct in holding that a tower would not qualify as a 'part' or 'component' or 'accessory' of capital goods like an antenna? (Relates to Rule 2(a) and 2(k) of CCR-2004). 3. Whether the CESTAT was correct in holding that the extended period under proviso to Section 73(1) of the Finance Act, 1994, could not be invoked against a Government of India owned company like BSNL, even when suppression of facts was involved? (Relates to Section 73(1) of Finance Act, 1994). Contentions: Appellant (BSNL): Argued that tower materials, puff channels, shade & parts thereof, and pre-fabricated buildings qualify as capital goods or inputs. Relied on the Delhi High Court's decision in Vodafone (supra) and the Supreme Court's decision in Bharti Airtel Ltd. (supra). Respondent (Revenue): Argued that the CESTAT correctly held these items as immovable property and not capital goods or inputs. Also contended that the extended period of limitation should have been invoked against BSNL. Relied on the Bombay High Court's decision in Bharti Airtel (supra).