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14 May 2016

CENVAT Credit of MS Steel Angles/parts etc. not available to Infrastructure Companies

In the case of Tower Vision India (P.) Ltd. v. Commissioner of Central Excise (Adj.), Delhi, {(2016) 69 taxmann.com 24 (New Delhi - CESTAT)} the Larger Bench of New Delhi CESTAT, held that the passive infrastructure companies hiring out telecom towers, to telecom companies, taxable under 'Business Auxiliary/Support Services', are not eligible to claim CENVAT Credit of MS Steel Angles/parts, pre-fabricated shelters parts, etc. used in erection of such towers.

In the said case, the assessees were providing 'business Auxiliary Services', or 'Business Support Services' for providing passive infrastructure i.e., hiring of towers, etc. and they took CENVAT Credit of MS Steel Angles/towers, pre-fabricated shelters parts. The Revenue deny the credit by relying on the case of Bharti Airtel Ltd. v. CCE (C.E.A. No. 73 of 2012, dated 26-8-2014). Honorable CESTAT held that:

  1. MS Angles, Channels falls under chapter 73 thus, fails to fall under the definition of capital goods. Similarly, pre-fabricated shelters falling under Chapter 94 also fall outside the purview of the definition of capital goods.

  2. To the alternate argument of the assessee, (that towers and pre-fabricated shelters ought to be considered as 'Accessories' of overall Base Transmission System (BTS) classifiable under Tariff Heading 8517), the CESTAT held that the Bombay High Court in Bharti Airtel Ltd. case observed that all the three terms - 'components', 'spares' and 'accessories' - used in rule 2(a)(A)(iii), should be understood as standing for movables only. Further, 'Capital goods' as defined under the CENVAT Credit Rules must be excisable goods. Tower being admittedly an immovable structure cannot be an accessory of any kind of instrument.

  3. Towers are immovable structures and ipso facto non-marketable and non-excisable, thus also fails to classify under inputs.

  4. The admitted basic requirement for eligibility of any duty credit is that goods on which duty is paid (credit of which is claimed) should have a connection or nexus to the output service. In other words, the credit availed on input is used for discharging tax on output service.

In any case, to be eligible as inputs or capital goods, such items must be 'goods' i.e., movable; but, in this case, towers have been held to be 'immovable' in State of A.P. v. Bharat Sanchar Nigam Ltd. (2011) 16 taxmann.com 48/33 STT 553 (A.P.), Bharti Airtel Ltd. v. CCE (C.E.A. No. 73 of 2012, dated 26-8-2014), and Vodafone India Ltd. v. CCE (2015) 61 taxmann.com 327 (Bom.), which are binding precedents and therefore, said items are ineligible for credit.