Introduction
In Bharti Airtel Ltd. v. Commissioner, CGST Appeals-1[i], the Delhi High Court has deliberated upon the characterization of telecommunication towers (‘telecom towers’) as immoveable property and its eligibility to claim Input Tax Credit (‘ITC’) under the Central Goods and Services Tax Act, 2017 (‘GST Act’). The issue arose before the High Court following the GST department's issuance of show cause notices (‘SCNs’) pan-India, raising an approximate GST demand of a whopping Rs. 5,400 crores, based on the fact that a telecom tower is an immovable property, and thus, ineligible to claim ITC as per s. 17(5)(d) of the GST Act.
Facts and Submissions
The writ petition challenged the SCNs issued under s. 74 of the GST Act, through which the department raised tax demand of several crores, accompanied by interest and penalty, while denying ITC to the Petitioner for the inputs and input services used in constructing telecom towers. The Petitioner made the following submissions:
Telecom towers do not fall within the ambit of s. 17(5)(d) of the CGST Act, which restricts ITC on goods and services used for constructing immovable property. It was further submitted that telecom towers are movable and can be dismantled, reinforcing their classification as movable. This reinforces their classification as movable. The concrete structure in which the telecom towers are embedded provides them with strength and stability; however, this does not alter their inherently movable nature, as their placement on such bases is only intended to ensure functionality and stability, not permanency.
The telecom towers qualified as capital goods under r. 2(k) of the Cenvat Credit Rules, 2004; thus, they were eligible to claim ITC under the GST Act.
Rebutting the aforementioned submissions, the Respondent submitted that the exclusion of telecom towers from the definition of ‘plant and machinery’ implied that they ought to be classified as immovable property. Thus, the Respondent argued that no ITC could have been claimed by the Petitioner, relying on s.17(5)(d) of the CGST Act, which governs ITC restrictions for immovable property.
Held
The High Court, finding no merit in the Respondent’s argument, held telecom towers are movable goods, relying on the Hon’ble Supreme Court's decision in Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune[ii], wherein it was conclusively held that telecom towers are incapable of being ascertained as immovable goods. The High Court clarified that telecom towers fail the test of permanency and cannot be deemed affixed to the earth. Their placement on concrete bases enhances functionality and stability without conferring permanency. Therefore, the ability to dismantle and relocate these towers further reinforces their characterization as movable property.
Further, the High Court, while relying on its earlier judgment titled Vodafone Mobile Services Ltd. v. Commissioner of Service Tax, Delhi[iii], also observed that the mere exclusion of telecom towers from the purview of ‘plant and machinery’, as provided under s. 17(5)(d) of the Act does not render telecom towers immovable property, especially considering that they do not satisfy the test of permanency.
Our Analysis
This judgment underscores the importance of interpreting GST provisions in a manner aligned with practical business realities and established legal principles. By clarifying that a telecom tower is a movable property, the High Court effectively upheld the assessee’s eligibility to claim ITC on the same, thus reiterating the cause of fairness in tax administration. This decision reiterates that statutory exclusions should not override fundamental principles such as movability and marketability. The present ruling reaffirms the jurisprudence laid down by the Supreme Court in Bharti Airtel (supra) while further contributing to solidify the jurisprudence in such regards to ensure consistency and balance in the application of ITC provisions under the GST regime.
End Notes
[i] 2024 SCC OnLine Del 8935 dated 12.12.2024.
[ii] 2024 SCC OnLine SC 3374.
[iii] 2018 SCC OnLine Del 12302.
Authored by Maarij Ahmad, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.