Telecom towers are moveable property which are eligible for ITC

The Hon'ble Delhi High Court in the case of Bharti Airtel Limited v. Commissioner, CGST Appeals-1, Delhi [W.P.(C) 13211/2024dated December 12, 2024] held that telecommunication towers do not qualify test of permanency, they are not 'attached to earth', they can be dismantled and moved and are never erected with an intent of conferring permanency and their placement on concrete bases was only to enable those towers to overcome vagaries of nature. Hence, they can be considered as moveable property which is eligible for Input Tax Credit ("ITC").

Facts:

M/s Bharti Airtel ("the Petitioner") beset the validity of an Order-in-Original dated March 24, 2023 affirmed in appeal in terms of the Order dated May 31, 2024 ("the Impugned Orders") passed by the Commissioner of Central Tax Appeals-1, the writ petitions preferred by Indus Towers Limited W.P. (C) 14710/2024 and ElevarDigitel Infrastructure Pvt Ltd. [W.P. (C) 16477/2024].

The Show Cause Notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 ("the CGST Act") raises a demand of tax along with interest and penalty for the period July 01, 2017 to March 31, 2024 relating pan India to 48 GST registrations of the Petitioner. Indus Towers explained that it is engaged in the business of providing passive infrastructure services to telecommunication service providers.

The prefatory parts of this decision, the impugned SCNs' seek to deny ITC on inputs and input services used for setting up passive infrastructure on the ground that the same were used in the construction of telecommunication towers and consequently falling within the ambit of clause (d) of Section 17(5) of the CGST Act.

The Petitioners contended that the telecommunication towers are moveable items of essential equipment used in telecommunications which can be dismantled at site and thus capable of being moved. It is explained that it is only the concrete structure on which those telecommunication towers are placed which could be treated as an immovable element of that equipment whereas the steel/metal structures are capable of being shifted to other locations. It is asserted that the errection of those towers on a concrete base is essentially for the purposes of according stability to the towers and that in itself would not detract from their basic characteristic of being items of equipment which are principally moveable.

According to the writ petitioners, the question of whether telecommunication towers are liable to be treated as immovable property is no longer res integra and stands conclusively settled in light of the recent decision rendered by the Supreme Court in Bharti Airtel Ltd v. Commissioner of Central Excise, Pune [2024 SCC OnLine SC 3374]. It was pointed out that Bharti Airtel, in fact, affirms the view that was taken by this Court in Vodafone Mobile Services Limited v. Commissioner of Service Tax, Delhi (2018 SCC OnLine Del 12302), albeit in the context of Rule 2 of the Cenvat Credit Rules, 2004. It was submitted that telecom towers, as the Supreme Court in Bharti Airtel holds, are intrinsically moveable items and were liable to be treated as capital goods entitled to be viewed as inputs under Rule 2(k) of the 2004 Rules.

Hence, aggrieved by the circumstances, the Petitioner filed the writ petition.

Issue:

Whether telecommunication towers are liable to be treated as immovable property?

Held:

The Hon'ble Delhi High Court in W.P.(C) 13211/2024held as under:

• Observed that, the Supreme Court in Bharti Airtel was principally concerned with whether MSP who pay excise duties on various items of infrastructure including the erection of mobile towers and peripherals would be entitled to avail the benefit of the Cenvat Credit Rules, 2004. The Delhi High Court, as the Supreme Court noted, had taken divergent views with the Bombay High Court having ruled against the Mobile Service Providers ("MSPs"). The Supreme Court firstly took note of the judgment rendered in Vodafone MobileServices by this Court and which had found that it would be incorrect to characterize mobile towers as immovable property since they would not satisfy the test of permanency or be liable to viewed as something attached to the earth. The Supreme Court ultimately came to render the following conclusions that 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 and sold in the market is not disputed. Hence, the Supreme Court was of the view that mobile towers and PFBs are movable properties and hence, "goods".

• Noted that, the provisions of Section 17(5) of the CGST Act itself stand exorcised from Section 16(1) of the CGST Act and thus not liable to be taken into consideration for the purposes of availing ITC. Amongst the various goods and services which find mention in sub-section (5) are those received by a taxable person for construction of an immovable property. Clause (d) of Section 17(5) of the CGST Act, also excludes from immovable property "plant or machinery". The expression "plant and machinery" has been defined by the Explanation appearing in Section 17(5) of the CGST Act to mean apparatus, equipment and machinery fixed to earth by foundation or structural support. However, it specifically excludes telecommunication towers from the ambit of the expression "plant and machinery".
• Opined that, the specific exclusion of telecommunication towers from the scope of the phrase "plant and machinery" would not lead one to conclude that the statute contemplates or envisages telecommunication towers to be immovable property. Telecommunication towers would in any event have to qualify as immovable property as a pre-condition to fall within the ambit of clause (d) of Section 17(5) of the CGST Act. Their exclusion from the expression "plant and machinery" would not result in it being concomitantly held that they constitute articles which are immoveable.
• Noted that, the decision in Vodafone Mobile Services as well as Bharti Airtel, though rendered in the context of the Central Credit Rules, 2004, have on application of the generic principles which would apply to the concept of immovable property, have in explicit terms come to conclude that telecommunication towers are liable to be treated as movable. Hence telecommunication towers would not fall within the ambit of Section 17(5)(d) of the CGST Act. The denial of ITC, consequently, would not sustain.

Our Comments:

The Hon'ble Supreme Court in the case of M/s Bharti Airtel Limited (Supra) pronounced its decision on the availability of Cenvat Credit on mobile towers, its parts and prefabricated buildings.

The Hon'ble Delhi High Court in Vodafone Mobile Services Limited (Supra) overruled the Bombay High Court Case of M/s Bharti Airtel Ltd. v. The Commissioner of Central Excise (2014 (35) S.T.R.865 (Bom.)).

The Supreme Court held that mobile towers and Prefabricated Buildings ("PFB") do not become immovable property by their mere attachment to the earth as it is not intended to be permanent. The attachment is only for providing support and effective functioning to the antenna.

Under GST regime, Section 16 of the CGST Act provides that every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business.

Section 17 provides for restriction on availment of credit. Possibly, the only restriction to avail credit on Mobile Towers and PFB can be under sub-clause (c) and (d) of sub-section (5) of Section 17.

However, on perusal of the definition of "plant and machinery" which specifically excludes buildings and telecommunication towers, a doubt may arise whether buildings and telecommunication towers are impliedly considered as immovable property for the purpose of GST law. Further, if they are not so considered, whether the exclusion of telecommunication towers from the definition of "plant and machinery" will become redundant.

Further, the definition of "plant and machinery" will not apply to clause (d) of Section 17(5) as the words used there are "plant or machinery" as held in Chief Commissioner f Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd.& Ors. [2024 INSC 756].

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