In a landmark ruling, the Supreme Court has upheld the rights of telecom operators and infrastructure companies to claim CENVAT credit on infrastructure duties.
The judgement affirmed the Delhi High Court decision in the Vodafone case while overturning the contrary ruling of the Bombay High Court in the Bharti Airtel matter. The decision of the Apex Court resolves conflicting interpretations regarding the applicability of CENVAT credit for telecom infrastructure, establishing clarity in favour of the telecom operators.
The Delhi High Court had earlier applied the “permanency test” established in the Supreme Court decision in Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works & Ors.
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This test determines whether equipment qualifies as immovable property. Under this principle, machinery permanently fastened or embedded to the earth is deemed immovable property, while equipment fastened merely to ensure “wobble-free operation” does not qualify as immovable.
In the case under consideration, telecom towers and shelters were fabricated off-site, supplied in a Completely Knocked Down (CKD) form, and fastened to a civil foundation for operational stability.
The Delhi High Court held that such fastening, designed solely to prevent wobbling and allow reassembly elsewhere without damage, does not render the equipment immovable property. This interpretation allowed telecom operators to claim CENVAT credit on the duties paid.
The Delhi High Court also noted that the Bombay High Court’s ruling in Bharti Airtel, which disallowed CENVAT credit, was inconsistent with the Supreme Court’s stance in the Solid and Correct Engineering Works case.
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On the contrary, in the Bharti Airtel case, the Bombay High Court had ruled that telecom towers are immovable property, making them non-excisable. It held that such towers could neither qualify as “capital goods” under Rule 2(a) of the CENVAT Credit Rules nor as “inputs” under Rule 2(k). Consequently, the court denied CENVAT credit on the duties paid for these items.
The latest judgement settles the dispute by endorsing the Delhi High Court’s view. It recognizes telecom towers and shelters as movable property when affixed for operational efficiency without permanent annexation to land.
The ruling enables telecom operators to claim CENVAT credit for duties paid on such infrastructure.
This decision provides much-needed relief to telecom operators.
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