1. These bunch of 14 appeals are involving similar disputes dealing with cenvat credit on inputs/capital goods and input services availed by these appellants, who are all involved in telecommunication business. The appellants are registered with the department for discharging service tax under telecommunication services.
2. The first dispute in these appeals is with reference to cenvat credit availed by them in respect of structural items like MS angles etc. and also various capital goods which are all used for setting up of telecommunication towers in various places. Appellant claimed credit on all these items under the category of "inputs" or "capital goods" dependent on the nature of such goods. The lower authority denied the credit stating that these did not satisfy the statutory definition of inputs or capital goods. The telecommunication tower being immovable asset, cannot be considered for credit purposes.
3. The second dispute in the present appeals is with reference to cenvat credit availed on various input services by these appellants. These inputs are services are (a) Erection and Construction service (b) Rent-a-cab service (c) Outdoor Catering service (d) Air Travel Agency service (e) Tour Operator service (f) Business Auxiliary Service (g) Authorized Service Station service, Subscription fees etc. Certain cenvat credits were disallowed due to non-submission of
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4. Ld. Counsel appearing for the appellants at the outset submitted that the duty credit on inputs and capital goods now disallowed by the lower authority has also been subject matter of decision by the Larger Bench of the Tribunal in Tower Vision India Pvt. Ltd. Vs. CCE Delhi 2006 (42) STR 249 (Tri.-LB) which followed the decision of Hon'ble Bombay High Court in Bharti Airtel Ltd. Vs. Commissioner : 2014 (35) STR 865 (Bom.). He submitted that decision of the Larger Bench is presently in appeal before the Hon'ble Delhi High court. The appeals have been admitted and the matter is still pending decision.
5. On the second issue regarding credit on various input services, it is the submission of the Ld. Counsel that substantial amount of credit is with reference to erection and construction services. The appellants are telecom operators and telecommunication towers are essential infrastructure for them to provide such services. Creation of such tower by paying service tax on such erection is an essential input service activity. Relying on the statutory definition of Rule 2(1) of Cenvat Credit Rules, 2004, he submitted that the appellants are eligible for such input service credit under the main part of the definition without any reference of any other provision for support. In other words, it is the claim of the appellant that input services in the present case being a service used by a service provider for providing a taxable service is covered under Rule 2(1)(i) during the relevant time, without drawing support from inclusive part of the definition which incidentally specifically mentions the services used in relation to setting up of premises of provider of output service. He submitted that substantial portion of the credit now being denied in various proceedings are with reference to credits pertaining to the period prior to 1.4.2011 on which date the statutory definition of input services underwent certain changes. The change relevant for the present dispute is deletion of the terms setting up from the inclusive part of the definition. Though appellants are pleading on the main definition itself, even otherwise, the deletion of inclusive part of the definition will not have impact with reference to substantial benefits provided except in three appeals in the present bunch. Ld. Counsel relies on certain case laws to hold that input service credits are available with reference to fabrication of towers as they are directly connected to their output telecommunication service.
6. On the other input services like Rent-a-cab, Catering, Air Travel Agent, Tour Operators, Ld. counsel submitted that these services were availed by appellant in connection with telecommunication activities and they have directly been used for such output services. Rent-a-cab and catering services are relating to period prior to 1.4.2011.
7. Ld. Counsel strongly contested the demand for extended period and for imposition of penalties. It is their submission that the whole issue of credit eligibility on MS items and accessories and capital goods used in erection of towers was subject matter of substantial litigation. This can be inferred even from the decision of the Tribunal which finally got resolved by the conflicting decisions of Larger Bench in Tower Vision India Pvt. Ltd. (supra). The basis that immovable property/asset is created and thereby the cenvat credit scheme will not apply itself is a subject matter of dispute not only in telecom service but with reference to other taxable services also. Accordingly, he pleaded that even if the denial of credits were upheld based on the ratio laid down by the decision of the Larger Bench of the Tribunal as well as Bombay High Court, no penalty can be imposed on the ground of bona fides. He relied on decision of the Tribunal in Vodafone Mobile Services Ltd. Vs. CST Hyderabad-III-2017-TIOL-1904-CESTAT-HYD.
8. Ld. AR contested the appeals on various grounds. On the first point, it is submitted that as admitted by the appellant themselves, the dispute of credit on inputs and capital goods stands decided against the appellant by the decision of Tribunal's Larger Bench (supra) which followed Bombay High court decision in Bharti Airtel Ltd. (supra).
9. On the second issue regarding eligibility of input services credit on various input services, Ld. A.R. submitted that as held by the original authorities the creation of immovable asset in between will be precluding the appellant from availing the credit on such services. In other words, there is no direct nexus between the erection and construction services of tower which results in the creation of tower and telecommunication services provided by them. The immovable civil structure is created by such input service and such civil structure is not subject matter of taxability of the goods or services. In other words, it is the case of the Revenue that ratio as applied to credit on inputs and capital goods should be applied to input services also. Further, on other input services, he submitted that they appellants have not established direct nexus of these services to the telecom service which is their output service.
10. We have heard both sides and perused appeal records.
11. On the first issue, both the sides agree that the matter is no more res integra as the Hon'ble Bombay High Court in Bharti Airtel Ltd. (supra) as well as Larger Bench decision in Tower Vision India Pvt. Ltd. (supra) held that credit on such inputs/capital goods as claimed by the appellant are not available. Following the ratio of these decisions, we hold that appellants are not eligible for such credits.
12. On the second issue regarding eligibility of various credits on input services, we note that the main activity of which substantial credit has been availed by various appellants is with reference to erection and construction of telecommunication towers. The plea of the appellant is that these towers are basic essential requirements for telecommunication service. As such, the service of erecting of such tower is essentially an input service covered by the main means clause of the definition for input service that is used by a service provider for providing output service. We are in agreement with the said proposition. We also note that ratio adopted for inputs and capital goods which were used for creating such towers cannot be automatically applied to input services rendered in creating towers. In this connection, we refer to a decision of the Tribunal in Idea Cellular Ltd. Vs. CST Mumbai-2016-TIOL-2486-CESTAT-MUM. The Tribunal examining a similar dispute observed as follows:
"7. The issue involved in the case is the eligibility to avail CENVAT credit of service tax paid on various input services and utilization thereof. Adjudicating authority has held that appellant is not eligible to avail CENVAT credit on services utilized for construction of towers, service related to supply of diesel, liaisoning services, catering charges, towers and shelters and on the capital goods. He has also held that appellant has wrongly utilized excess CENVAT credit of more than 20% of credit balance in few months despite rendering taxable non-taxable services. In our considered view the adjudicating authority has erred in coming to such a conclusion we address each issue as under:-
(b) Demand pertaining to CENVAT credit of service tax paid on construction of tower on perusal of Tribunal's order No. A/86785/15/SMB dated 30.04.2015, we find that same issue was agitated before the Bench. Tribunal considering the issue from all angles held that CENVAT credit can be availed of service tax paid on services utilized for erection of towers. We do not find any reason to deviate from such a reasoned order. Accordingly, we hold that CENVAT credit availed of service tax paid on services utilized for erection of tower....."
13. The said ratio has been followed in BSNL Vs. CCE Chandigarh: 2017 (47) STR 246 (Tri.-Chan.). Accordingly, following the ratio already laid down, we hold that input service credit on erection of telecommunication towers are eligible for the appellant.
14. Regarding various other input services like Rent-a-cab, Outdoor catering, Air Travel Agent, tour operator, we note that plea of the appellant is that these are directly used by the appellant in connection with providing telecom service. Ld. Counsel submitted that they have produced all the supporting evidence, invoices before the original authority for scrutiny. The denial of credit is not due to non-availability of documents. The denial is on legal principle that these are not input services. In principle we agree with appellants that since these services have been availed by the appellant in the course of their business of providing telecom services and the same should be eligible for them. Certain miscellaneous amounts have been disallowed on other expenses like Authorized Service Station service, Business Auxiliary Service and ineligible documents. On examining the issue, we are not fully satisfied with the details on the basis and the purposes of such credit and accordingly we are in agreement with the lower authorities in denying them in the absence of any contrary evidence produced by the appellant to establish their eligibility for the same.
15. Regarding the plea of the appellant against demand of extended period and penalty, we note that the issue regarding cenvat credit on inputs and capital goods with reference to telecommunication towers set up by telecom operators has been a subject matter of substantial disputes in various forums. The coordinate Benches of the Tribunal had different views in interpreting the legal provisions resulting in a reference to a Larger Bench. Finally, the matter was decided in Tower Vision case (supra) which followed the ratio of the Hon'ble Bombay High Curtin the case of Bharti Airtel (supra). Admittedly, the dispute is one involving legal interpretation and difference of opinion. In such circumstances, it is not tenable to invoke ingredients of Section 73 proviso for confirming the demand for extended period as well as imposing penalties. In this connection, we refer to the decision of the Tribunal in Vodafone Mobile Services Ltd. 2017-TIOL-1904-CESTAT-HYD. While upholding the denial of credit on MS angles and beams in identical dispute, the Tribunal held that as below:
"6. However on the matter of penalty we find that the issue is interpretational in nature. Concerning the eligibility of credit on the parts used in the towers, there has been sufficient confusion in the matter. It is also not disputed that there was more than one view in the matter and hence following the ratio laid down in Hon'ble Apex Courts judgments in the case of Continental Foundation Jt. Venture case: 2007 (216) ELT 177 (SC)] : 2007-TIOL-152-SC-CX and also following the view taken by Co-ordinate Bench in M/s. Tata Teleservices Ltd., and others Vs. Commr of ST, Pune -[2015-TIOL-628-CESTAT-MUM] and M/s. Vodafone Essar Digilink India Ltd., Vs. Commr of CE, Panchkula : 2016-TIOL-873-CESTAT-CHD], we hold that the penalties imposed on the appellant on these cases will have to be set aside. For the same reason, the demand which is barred by limitation (for the period 09/2005 to 09/2007) for an amount of Rs. 9,04,98,881/- will require to be set aside, which we hereby do. However demand of Rs. 6,90,51,921/- for the normal period is not hit by limitation, (for the period 10/2007 to 09/2008) will sustain and is upheld. Penalty imposed on the appellant under Rule 15(4) of the CENVAT Credit Rules, 2004 read with section 78 of the Finance Act, 1994 is also set aside. Appeal disposed of on above terms with consequential reliefs, if any."
Similar view is taken by Bombay High Court in Vodafone Essar Cellular Ltd. 2018-TIOL-124-HC-MUM-CX and by Tribunal in FASCEL Ltd.: 2017 (52) STR 434 (Tri.-Ahmd.)
16. Accordingly, in view of the above discussion and analysis, we hold that demand wherever raised will be restricted to the normal period with no penalties.
17. In view of the above discussion and analysis, we uphold the denial of credit on inputs/capital goods used in the creation of various telecommunication towers. The credits on input services to the extent as discussed above are allowed. The demand wherever is sustained consequent on denial of credit shall be restricted to normal period with no penalties.
Appeals are disposed of in the above terms. The MAs filed by Revenue for change of cause title are allowed.
(dictated and pronounced in court