M/S Bharti Airtel Limited vs Commissioner, Cgst Appeals-1 Delhi on 12 December, 2024

Judgment Summary: M/S Bharti Airtel Limited vs Commissioner, Cgst Appeals-1 Delhi

1. Outcome

The writ petitions were allowed in favor of the petitioners (Bharti Airtel, Indus Towers, and Elevar Digitel).

• For Bharti Airtel, the Order-in-Original (24 March 2023) and the appellate order (31 May 2024), which denied Input Tax Credit (ITC), were quashed.
• For Indus Towers and Elevar Digitel, the Show Cause Notices (SCNs) proposing to deny ITC were also quashed.

2. Core Issue

The central legal question was whether telecommunication towers constitute "immovable property" under the CGST Act, 2017. If so, whether Input Tax Credit (ITC) availed on goods and services used for their construction is blocked under Section 17(5)(d) of the Act.

3. Key Facts

• The petitioners, involved in providing telecommunication and passive infrastructure services, had availed ITC on inputs and input services used for setting up telecommunication towers.
• The GST department initiated proceedings to deny this ITC, arguing that the towers are "immovable property" constructed by the petitioners on their own account.
• The department contended that such ITC is expressly blocked by Section 17(5)(d) of the CGST Act.
• Bharti Airtel challenged a confirmed demand, while Indus Towers and Elevar Digitel challenged the Show Cause Notices issued on the same grounds.

4. Arguments

• Petitioners' Arguments:

  • Telecommunication towers are movable equipment, not immovable property. They are fabricated, supplied in Completely Knocked Down (CKD) condition, and can be unbolted, dismantled, and relocated to other sites without significant damage.
  • The foundation to which they are affixed is merely for stability and to make them "wobble-free," not for permanent beneficial enjoyment of the land.
  • The issue is authoritatively settled by the Supreme Court in Bharti Airtel Ltd vs. Commissioner of Central Excise, Pune (2024), which held that telecom towers are movable goods.

• Respondents' (Revenue's) Arguments:

  • The precedents cited by the petitioners, though not disputed, were rendered under the CENVAT Credit Rules, 2004.
  • The CGST Act is distinguishable due to the Explanation at the end of Section 17, which defines "plant and machinery".
  • This Explanation specifically excludes "telecommunication towers" from the definition of "plant and machinery". Since "plant and machinery" is an exception to the ITC blockage on immovable property, the exclusion of towers implies they are to be treated as immovable property for the purpose of Section 17(5)(d).

5. Court’s Reasoning

The High Court rejected the Revenue's arguments and ruled in favor of the petitioners based on the following reasoning:

• Binding Precedent of the Supreme Court: The Court held that the Supreme Court's decision in Bharti Airtel (2024) conclusively settles the nature of telecommunication towers. The Supreme Court applied universally accepted tests (permanency, functionality, marketability, object of annexation) and unequivocally held that towers are movable property.
• Pre-requisite for Section 17(5)(d): The primary condition for the applicability of the ITC block under Section 17(5)(d) is that the goods or services must be used for the construction of an "immovable property".
• Interpretation of the Explanation to Section 17: The Court reasoned that the exclusion of "telecommunication towers" from the definition of "plant and machinery" in the Explanation does not automatically render them "immovable property".
• Logical Fallacy in Revenue's Argument: The exclusion is only relevant if the item in question is first established to be an immovable property. Since the Supreme Court has already determined that towers are movable, they fall outside the primary ambit of Section 17(5)(d) altogether. Their subsequent exclusion from the definition of "plant and machinery" (which is an exception within the clause) is therefore inconsequential.
• Conclusion: As telecommunication towers are not immovable property, the very foundation of the Revenue's case is untenable. Consequently, the denial of ITC under Section 17(5)(d) is illegal.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 16(1): Eligibility for ITC.
  • Section 17(5)(d): Blocks ITC on goods/services received for the construction of an immovable property (other than plant or machinery) on one's own account.
  • Explanation to Section 17: Defines "plant and machinery" and excludes telecommunication towers.
  • Section 74: Pertains to determination of tax not paid due to fraud, etc.
• Other Statutes:
  • Transfer of Property Act, 1882 (Section 3)
  • General Clauses Act, 1897 (Section 3(36))
  • Cenvat Credit Rules, 2004

7. Precedents Cited

• Primary Reliance:
  • Bharti Airtel Ltd vs. Commissioner of Central Excise, Pune, 2024 SCC OnLine SC 3374
  • Vodafone Mobile Services Limited vs. Commissioner of Service Tax, Delhi, 2018 SCC OnLine Del 12302
• Supporting Principles:
  • Commissioner of Central Excise, Ahmedabad vs. Solid and Correct Engineering Works, (2010) 5 SCC 122
  • Sirpur Paper Mills Ltd. v. Collector of Central Excise, Hyderabad, (1998) 1 SCC 400
  • Triveni Engineering & Indus Ltd. v. Commissioner of Central Excise, (2000) 7 SCC 29