Case Law (SC) -- Tower and the prefabricated buildings (PFBs) are not immovable property but are “goods”/ “capital goods” within the meaning of Rule 2(a)(A)(iii) and since these are used for providing output service, i.e. mobile service, these can be considered to be “inputs” within the meaning of Rule 2(k) and CENVAT credit can be availed in respect of these goods for payment of service tax.

M/S BHARTI AIRTEL LTD. v. THE COMMISSIONER OF CENTRAL EXCISE [2024 INSC 880] dated 20.11.2024

Issue

Whether the mobile service providers (MSPs) are entitled to claim CENVAT credit on excise duties paid on mobile tower, its parts thereof and prefabricated buildings (PFBs) in terms of the Rule 3 of the CENVAT Rules and whether the credit so claimed can be used to pay service tax for the output services rendered by the MSPs.

 Decision:

"11.6 From the above, it is now clear that if these items, namely towers and parts thereof and prefabricated buildings/shelters are considered to be “goods”, these cannot be immovable properties. Conversely, if these are not rooted in the earth, nor imbedded in the earth nor attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached, these cannot be immovable properties and can qualify to be movable properties and hence, “goods”. 

11.6.1 Since, towers and parts thereof and prefabricated buildings/shelters apparently appear to be fixed on the earth or building, these seem to be immovable properties at the first blush. However, the first appearance may not be decisive to indicate the real character of these items, whether these are immovable or movable properties, as demonstrated by the conflicting views of the two High Courts on this issue. Hence, we need to delve further to arrive at the correct position in law on this issue. 

11.7 In order to determine whether any property is movable or immovable, this Court, in the light of the statutory provisions has applied certain principles. It has also been noted thatsuch determination may be done not based on a single test but after applying several criteria on the facts of each case.

We will now refer to some of the decisions relied upon by the contesting parts."

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"11.8 In view of the above decisions, we are of the opinion that merely because certain articles are attached to the earth, it does not ipso facto render these immovable properties. If such attachment to earth is not intended to be permanent but for providing support to the goods concerned and make their functioning more effective, and if such items can still be dismantled without any damage or without bringing any change in the nature of the goods and can be moved to market and sold, such goods cannot be considered immovable. 

11.8.1 We may summarise some of the principles applied by the Courts in the decisions referred to above to determine the nature of the property as follows: 

1. Nature of annexation: This test ascertains how firmly a property is attached to the earth. If the property is so attached that it cannot be removed or relocated without causing damage to it, it is an indication that it is immovable.  

2. Object of annexation: If the attachment is for the permanent beneficial enjoyment of the land, the property is to be classified as immovable. Conversely, if the attachment is merely to facilitate the use of the item itself, it is to be treated as movable, even if the attachment is to an immovable property. 

3. Intendment of the parties: The intention behind the attachment, whether express or implied, can be determinative of the nature of the property. If the parties intend that the property in issue is for permanent addition to the immovable property, it will be treated as immovable. If the attachment is not meant to be permanent, it indicates that it is movable. 

4. Functionality Test: If the article is fixed to the ground to enhance the operational efficacy of the article and for making it stable and wobble free, it is an indication that such fixation is for the benefit of the article, such the property is movable. 

5. Permanency Test: If the property can be dismantled and relocated without any damage, the attachment cannot be said to be permanent but temporary and it can be considered to be movable. 

6. Marketability Test: If the property, even if attached to the earth or to an immovable property, can be removed and sold in the market, it can be said to be movable. "

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"11.9.9 Applying the tests of permanency, intendment, functionality and marketability, it is quite clearly evident that these items are not immovable but movable within the meaning of Section 3 of the Transfer of Property Act, read with Section 3 (36) of the General Clause Act. 

If we consider the nature of annexation of the tower to the earth, it is seen that the annexation is not for permanent annexation to the land or the building as the tower can be removed or relocated without causing damage to it. 

It is also to be noted that the attachment of the tower to the building or the land is not for the permanent enjoyment of the building or the land. 

Further, the tower is fixed to the land or building for enhancing the operational efficacy and proper functioning of the antenna which is fixed on the tower by making it stable and wobble free.  

The fact that the tower, if required can be removed, dismantled in the CKD and SKD and sold in the market is not disputed. 

Application of the tests evolved and discussed above on these items clearly points to the movability as opposed to immovability of these items. We are, thus, of the view that mobile towers and PFBs are movable properties and hence, “goods”."

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"11.11.11 There is no dispute to the fact that BTS is a composite system consisting of the transmitter, receiver, antenna and other equipment, and antenna can be said to be an integral part of BTS. As discussed above, and not disputed by the Revenue, tower is needed to keep the antenna at an appropriate height and keep it stable. Without the tower, it is not possible to hoist the antenna at the requisite height and without it being securely fastened to the tower, antenna cannot be kept firm and steady for proper receipt and transmission of radio signals. Thus, there cannot be any doubt that a mobile tower can be treated to be an accessory of antenna and BTS. Accordingly, since in terms of subclause (iii) of Rule 2(a)(A), all components, spares and accessories of such capital goods falling under sub-clause (i) would also be treated as capital goods, a mobile tower can also be treated as “capital good”. 

11.11.12 We, therefore, agree with the conclusion arrived at by the Delhi High Court that towers and shelters (PFBs) support the BTS/antenna for effective transmission of mobile signals and thus enhance their efficiency and since these articles are components/ accessories of BTS/antenna which are admittedly “capital goods” falling under Chapter 85 within sub-clause (i) of Rule 2(a)(A) of CENVAT Rules, these items consequently are covered by the definition of “capital goods” within the meaning of sub-clause (iii) read with sub-clause (i) of Rule 2(a)(A) of CENVAT Rules. Further, since these are used for providing output service, i.e., mobile telecommunication service, and since these are “capital goods” received in the premises of the provider of output service as contemplated under Rule 3(1)(i), the Assessees would be entitled to CENVAT credit on the excise duties paid on these goods. "