M/s Bharti Airtel Ltd. v. The Commissioner of Central Excise, Pune

Digital Supreme Court Reports

(SKD) condition and it was erected and installed at the site after assembling the parts. If the said mobile tower is to be shifted to another location, it obviously has to be dismantled and restored to its SKD or CKD condition and thereafter re- erected, which however, would not entail any damage to it. Thus, the present case of the mobile towers differs from the factual matrix of T.T.G. Industries Ltd. (supra). 11.7.12 Before us, the Revenue has also placed reliance on the Commissioner of Central Excise Versus Virdi Brothers and Ors. (2007) 15 SCC 24 and CCE Versus Globus Store Pvt. Ltd. (2011) 15 SCC 200, in which this Court relied on a Circular issued by the Central Board of Excise and Custom, Department of Revenue, Ministry of Finance, Government of India under No. 58/1/2002-CX dated 15.01.2002 in which it was mentioned under Clause (e) that, “(e) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as movable and will, therefore, not be excisable goods.” 11.7.13 In the present case, as discussed above, the tower has been bought and brought to the site in a semi or completely knocked-down condition and assembled and if the same is required to be re-located to another location it can be dismantled in its original semi-knocked-down or completely knocked down condition without causing any damage to the tower itself and as such the Clause (e) of the Circular referred to the above cannot be applied. 11.7.14 It may be also noted that the CESTAT, in its order observed that the Revenue does not contest or dispute the fact that wherever BTS/ BSC site has to be relocated, all the equipment like BTS/BSC, microwave, UPS, tower, antenna etc., are required to be dismantled as individual components and then they are required to be moved from the existing site and reassembled at a new site. The CESTAT, however, observed that this involves damage to certain parts like cable

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M/s Bharti Airtel Ltd. v. The Commissioner of Central Excise, Pune

trays etc. which are embedded/fixed to the civil structure as also the BTS microwave equipment itself. Thus, all the components of the newly set up structure cannot be shifted as an illustration to the room housing the equipment. Apart from it, the CESTAT was of the opinion that the goods cannot be re-erected as in the previous place as requirement of each place is different. The structures cannot be shifted without damage. Apart from that various items and components are embedded in the earth. Therefore, the structure would not be considered as movable. 11.7.15 Therefore, the finding of the CESTAT is that even though the tower can be relocated to another site, it would entail damages to it. 11.7.16 There can no dispute that if the newly set up BTS/ BSC is relocated to another site it may entail certain damages. However, what is important to be noted is that the damage is qua the BTS/BSC or cables connecting the various components, but not the tower itself or PFB with which we are concerned. If the tower or the PFB can be dismantled and relocated in another site without causing any damage to either the tower or PFB, the mobility or the marketability of these items is retained. Thus, as far as the tower and PFBs are concerned, these exhibit the character of a movable property. 11.8 In view of the above decisions, we are of the opinion that merely because certain articles are attached to the earth, it does not ipso facto render these immovable properties. If such attachment to earth is not intended to be permanent but for providing support to the goods concerned and make their functioning more effective, and if such items can still be dismantled without any damage or without bringing any change in the nature of the goods and can be moved to market and sold, such goods cannot be considered immovable. 11.8.1 We may summarise some of the principles applied by the Courts in the decisions referred to above to determine the nature of the property as follows:

1. Nature of annexation: This test ascertains how firmly a property is attached to the earth. If the property is

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so attached that it cannot be removed or relocated without causing damage to it, it is an indication that it is immovable.

2. Object of annexation: If the attachment is for the permanent beneficial enjoyment of the land, the property is to be classified as immovable. Conversely, if the attachment is merely to facilitate the use of the item itself, it is to be treated as movable, even if the attachment is to an immovable property.

3. Intendment of the parties: The intention behind the attachment, whether express or implied, can be determinative of the nature of the property. If the parties intend that the property in issue is for permanent addition to the immovable property, it will be treated as immovable. If the attachment is not meant to be permanent, it indicates that it is movable.

4. Functionality Test: If the article is fixed to the ground to enhance the operational efficacy of the article and for making it stable and wobble free, it is an indication that such fixation is for the benefit of the article, such the property is movable.

5. Permanency Test: If the property can be dismantled and relocated without any damage, the attachment cannot be said to be permanent but temporary and it can be considered to be movable.

6. Marketability Test: If the property, even if attached to the earth or to an immovable property, can be removed and sold in the market, it can be said to be movable. 11.9 The plea of the Revenue is that the items in issue are attached to the earth, fixed permanently and not marketable, hence immovable, as also accepted by the Bombay High Court. 11.9.1 What is “attached to the earth” to make it an immovable property would have to possess any of the three attributes as specified under Section 3 of the Transfer of Property of Act, namely,

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(a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached: 11.9.2 The present items in issue are not the ones which are rooted in the earth as in the case of trees and shrubs [sub- clause (a)]. Therefore, the next consideration will be whether these are embedded in the earth, as in the case of walls or buildings [sub-clause (b)], or whether these are attached to what is so embedded for the permanent beneficial enjoyment of that to which these are attached to the earth [sub-clause (c)]. The attachment of tower to the earth/building, however, does not partake of the character of walls or buildings imbedded in the earth. 11.9.3 It is on the tower that the antennas are mounted and affixed at proper height, to make these stable. Since the antennas are used for receiving and sending radio signals, these need to be attached at a certain height, and these are required to be stable and wobble-free. It is not in dispute that the mobile tower is attached and fastened to the earth or building to provide stability to the same and to make antennas unshakable due to wind, rain or any other external force(s). 11.9.4 The mobile tower is bought and brought in the CKD or SKD form from the manufacturers and same is installed at the site by assembling the parts which also consists of MS angles and channels. The tower, after being assembled and fixed to the earth or a building can be dismantled without any change in the nature of the tower, and the tower can be removed and shifted to any other location as per the needs and requirements of the service provider and also can be re-sold in the market in the same form and hence both, the functionality and marketability tests as applied in the aforesaid cases of Solid and Correct Engineering (supra), Triveni Engineering (supra) and Sirpur Paper Mills Ltd. (supra) can be said to be fulfilled in the present case.

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11.9.5 The tower is brought to the site in CKD or SKD form and assembled at the site. If it is to be dismantled, it only involves unbolting of the nuts and bolts. Dismantling the tower may entail some damages, but such damages will be on the cables which may be required to be stripped of but no damage is caused to the tower. If one says that there may be some damage caused, it will be with reference to the BTS which consists of the antenna, connected by cables and other electrical equipment. But there is no damage to the tower per se. Similarly, in case of PFB, there is no damage to it, though damage may be caused to the wiring or cables connecting the various parts of the Base Transceiver System (BTS) or the Base Station Sub-System (BSS). 11.9.6 The tower which is affixed to the earth and thus appears to be immovable, can be dismantled from the existing site and re-assembled without causing any change in its character. It can be moved to any other place and also sold in the market. These attributes negate the permanency test, which is a characteristic of immovable property. The tower when fixed to the earth or the building or the civil foundation by nuts and bolts does not get assimilated with the earth or building permanently. Such affixing is only for the purpose of maintaining stability of the tower and keep it wobble free so that the antenna which is hoisted on it can receive and transmit the electromagnetic signals effectively and without any disturbance. Affixing of the tower to the earth or building is not for the permanent beneficial enjoyment of the land or building, but to make it stable for effective functioning of the antenna for seamless rendering of mobile services by the service provider to the consumers/subscribers. Same is the case with pre-fabricated buildings (PFB). 11.9.7 If we thus apply the functionality test, it can be stated that the attachment of tower to the earth /building is not for the benefit of the land or the building but for better functioning of the antenna which is fixed on the tower. Thus, based on functionality test it can be said that tower is a movable property, as also held in Municipal Corporation of Greater Bombay (supra).

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M/s Bharti Airtel Ltd. v. The Commissioner of Central Excise, Pune

11.9.8 These items are not embedded in the earth as in the case of walls or buildings so as to fall under clause (b) of the definition of “attached to the earth” as provided under Section 3 of the Transfer of Property of Act. Neither do these items fall under clause (c) of the definition of “attached to the earth” and nor are these intended to be for permanent beneficial enjoyment of the building or land to which these are attached. In this regard, it may be apposite herein to mention what was stated in Solid & Correct Engg. Works (supra) as follows:- “25. It is evident from the above that the expression “attached to the earth” has three distinct dimensions viz. (a) rooted in the earth as in the case of trees and shrubs, (b) imbedded in the earth as in the case of walls or buildings, or (c) attached to what is imbedded for the permanent beneficial enjoyment of that to which it is attached. Attachment of the plant in question with the help of nuts and bolts to a foundation not more than 1½ ft deep intended to provide stability to the working of the plant and prevent vibration/wobble free operation does not qualify for being described as attached to the earth under any one of the three clauses extracted above. That is because attachment of the plant to the foundation is not comparable or synonymous to trees and shrubs rooted in earth. It is also not synonymous to imbedding in earth of the plant as in the case of walls and buildings, for the obvious reason that a building imbedded in the earth is permanent and cannot be detached without demolition. Imbedding of a wall in the earth is also in no way comparable to attachment of a plant to a foundation meant only to provide stability to the plant especially because the attachment is not permanent and what is attached can be easily detached from the foundation. So also the attachment of the plant to the foundation at which it rests does not fall in the third category, for an attachment to fall in that category it must

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be for permanent beneficial enjoyment of that to which the plant is attached. It is nobody’s case that the attachment of the plant to the foundation is meant for permanent beneficial enjoyment of either the foundation or the land in which the same is imbedded.” 11.9.9 Applying the tests of permanency, intendment, functionality and marketability, it is quite clearly evident that these items are not immovable but movable within the meaning of Section 3 of the Transfer of Property Act, read with Section 3 (36) of the General Clause Act. If we consider the nature of annexation of the tower to the earth, it is seen that the annexation is not for permanent annexation to the land or the building as the tower can be removed or relocated without causing damage to it. It is also to be noted that the attachment of the tower to the building or the land is not for the permanent enjoyment of the building or the land. Further, the tower is fixed to the land or building for enhancing the operational efficacy and proper functioning of the antenna which is fixed on the tower by making it stable and wobble free. The fact that the tower, if required can be removed, dismantled in the CKD and SKD and sold in the market is not disputed. Application of the tests evolved and discussed above on these items clearly points to the movability as opposed to immovability of these items. We are, thus, of the view that mobile towers and PFBs are movable properties and hence, “goods”. 11.9.10 What we have also noticed is that the Bombay High Court has held that since the towers and parts thereof are fastened and fixed to the earth and after their erection, they become immovable, and therefore, these cannot be classified as goods. While this conclusion is based on the classic definition of immovable property based on one criterion, as noticed earlier, that may not be the sole consideration to determine whether a property is immovable or movable.

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Even if the property is embedded to the earth and appears ex-facie immovable, if there are other indicators which show the characteristics of a movable property, as for instance, susceptibility to removal of the property from the fixture without causing any damage to its basic structure and change in character, ability of relocation to a new location and if the same can be sold thereby showing marketability, and lack of intention to make it a permanent fixture, in spite of the said property being embedded to the earth by way of fixing, the property may still be considered to be movable as has been held in many of the cases referred to above including in Solid and Correct Engineering (supra). 11.9.11 It also appears that the decision of this Court in Solid and Correct Engineering (supra) was not brought to the notice of the Bombay High Court and thus escaped consideration. The Bombay High Court without considering above-mentioned aspects proceeded on the premise that these items namely tower, its parts thereof and PFBs are immovable properties. In paragraph no. 52 of the impugned judgment, while dealing with the case of CCE Vs. Sai Samhita Storages (P) Ltd., (supra) rendered by the Division Bench of the Andhra Pradesh High Court, the Bombay High Court observed that, “The towers are admittedly immovable structures and non-marketable and non-excisable. We, therefore, are of the clear opinion that this judgment of the Division Bench of the Andhra Pradesh High Court is inapplicable in the facts of the present case.” 11.9.12 We are of the opinion that the aforesaid finding was erroneous for the reason that there was no admission on the part of the Assessee that towers are immovable structures and in fact, that was the disputed issue before the Court which was required to be determined. 11.9.13 The Revenue, however, relied on Triveni Engineering & Industries Ltd. (supra) to contend that there is neither mobility nor marketability in the tower but it is permanently

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fastened to the earth or building. In this regard, para 13 and 14 of the judgment in Triveni Engineering & Industries Ltd. (supra) may be referred to “13. A perusal of the entry shows that a turbo alternator does not find a place therein eo nomine. The question then will be whether a “turbo alternator” falls within the meaning of “electric-generating set”. To bring a “turbo alternator” under that heading it must be shown to have the attributes of excisable “goods” as understood in the excise law. They are mobility and marketability. The article in question should be capable of being brought and sold in the market — a test which is too well established by a series of decisions of this Court to be elaborated here.

14. There can be no doubt that if an article is an immovable property, it cannot be termed as “excisable goods” for purposes of the Act. From a combined reading of the definition of “immovable property” in Section 3 of the Transfer of Property Act, Section 3(25) of the General Clauses Act, it is evident that in an immovable property there is neither mobility nor marketability as understood in the excise law. Whether an article is permanently fastened to anything attached to the earth requires determination of both the intention as well as the factum of fastening to anything attached to the earth. And this has to be ascertained from the facts and circumstances of each case.” 11.9.14 Hence, it is to be noted that the tower, though appears to be fastened to the earth, cannot be said to be permanently fastened to the earth or a building for the beneficial enjoyment of the land or the building. The tower possesses the characteristics of mobility as the same can be dismantled and relocated to another place or site. Therefore, in our opinion, the decision in Triveni Engineering & Industries Ltd. (supra) cannot be applied in the present case, considering the factum and intention behind fastening

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M/s Bharti Airtel Ltd. v. The Commissioner of Central Excise, Pune

of the tower for purpose of keeping the antenna stable and wobble free and that it can be relocated. 11.9.15 Reliance has been also placed by the Revenue on Quality Steel Tubes (P) Ltd. (supra) by drawing our attention to para 5 and 6 of the judgment which read as follows: “5. In several decisions rendered by this Court commencing from Union of India v. Delhi Cloth and General Mills Co. Ltd. [AIR 1963 SC 791 : 1977 ELT 199] to Indian Cable Co. Ltd. v. CCE [(1994) 6 SCC 610 : (1994) 74 ELT 22] the twin test of exigibility of an article to duty under Excise Act are that it must be goods mentioned either in the Schedule or under Item 68 and must be marketable. In Delhi Cloth Mills [AIR 1963 SC 791 : 1977 ELT 199] it having been held that the word ‘goods’ applies to those goods which can be brought to market for being bought and sold it is implied that it applies to such goods as are moveable. The requirement of the goods being brought to the market for being bought and sold has become known as the test of marketability which has been reiterated by this Court in CCE v. Ambalal Sarabhai Enterprises [(1989) 4 SCC 112 : 1989 SCC (Tax) 162 : (1989) 43 ELT 214]. The Court has held in Union Carbide India Ltd. v. Union of India [(1986) 2 SCC 547 : 1986 SCC (Tax) 443] that even if the goods was capable of being brought to the market, it would satisfy the test of marketability. The basic test, therefore, of levying duty under the Act is twofold. One, that any article must be goods and second, that it should be marketable or capable of being brought to market. Goods which are attached to the earth and thus become immovable and do not satisfy the test of being goods within the meaning of the Act nor it can be said to be capable of being brought to the market for being bought and sold. Therefore, both the tests, as explained by this Court, were not satisfied in the case of appellant as the tube mill or welding head having been erected and installed in

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the premises and embedded to earth ceased to be goods within meaning of Section 3 of the Act.

6. Learned counsel for the Revenue urged that even if the goods were capable of being brought to the market it would attract levy. True, but erection and installation of a plant cannot be held to be excisable goods. If such wide meaning is assigned it would result in bringing in its ambit structures, erections and installations. That surely would not be in consonance with accepted meaning of excisable goods and its exigibility to duty. 11.9.16 The Revenue has also relied on the decision in Mittal Engineering Works (P) Ltd. (supra) by referring to paras 9 and 10 of the said judgment which are reproduced as below: “9. Upon the material placed upon record and referred to above, we are in no doubt that the mono vertical crystalliser has to be assembled, erected and attached to the earth by a foundation at the site of the sugar factory. It is not capable of being sold as it is, without anything more. As was stated by this Court in the case of Quality Steel Tubes (P) Ltd. [(1995) 2 SCC 372] the erection and installation of a plant is not excisable. To so hold would, impermissibly, bring into the net of excise duty all manner of plants and installations.

10. The Tribunal took an unreasonable view of the evidence. It was the case of the appellants, not disputed by the Revenue, that mono vertical crystallisers were delivered to the customers in a knocked-down condition and had to be assembled and erected at the customers’ factory. Such assembly and erection was done either by the appellants or by the customer. Where it was done by the appellants, fabrication materials of the customer were used and the customer sent to the appellants debit notes in regard to their value. Where the assembly and erection was done by the customer, there was no occasion for it to send

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to the appellants a debit note. The fact that there was no debit note in respect of one customer could not reasonably have led the Tribunal to conclude that in the case of that customer a complete mono vertical crystalliser had left the appellants’ factory and that, therefore, mono vertical crystallisers were marketable. The Tribunal ought to have remembered that the record showed that mono vertical crystallisers had, apart from assembly, to be erected and attached by foundations to the earth and, therefore, were not, in any event, marketable as they were.” 11.9.17 Relying on the aforesaid decisions, it has been contended by the Revenue that the tower once assembled and fixed to the earth/building, ceases to be marketable and hence cannot be said to be moveable. 11.9.18 However, as discussed above, the tower and PFBs, after being dismantled without being damaged, can be relocated or sold, thereby possessing the character of marketability. As such these decisions would not be applicable in the present case. For the same reason, the decision in T.T.G Industries Ltd. (supra) also relied upon by the Revenue will not help the cause of the Revenue. 11.9.19 The Revenue has also sought to rely upon a circular under F.No.137/315/2007-CX.4, dated 26.02.2008 issued by the Central Board of Excise and Customs, Department of Revenue, Ministry of Finance specifying that angles, channels, beam of steel and prefabricated shelter, PUF panels are used by the cellular phone service providers for erecting towers and making housing/storage units and are used in making of products and cannot be called excisable goods, being attached to the earth and are not chargeable to excise duty. The circular further mentions that these inputs for civil structures are not used for providing taxable service and accordingly the circular clarified that credit of excise duty paid on such items is not available to the telecom service providers.

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11.9.20 We are of the considered opinion that though the Revenue/ Department may issue any such circular based on their understanding of the matter and the Revenue authorities/ officers are bound to follow it, yet, in view of the findings arrived at by us in these proceedings, the said circular would be of no avail and to the extent the same is contrary to our findings in these proceedings would not be enforceable and would be liable to be withdrawn. 11.9.21 In Commissioner of Central Excise, Bolpur Vs. M/s Ratan Melting & Wire Industries (2008) 14 SCR 653, it was held that, “6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law. (emphasis added) The aforesaid proposition of law was reiterated in Commissioner of Central Excise, Mumbai, Vs. Hindoostan Spinning and Weaving Mills Ltd. & anr (2009) 14 SCC 221. 11.9.22 In a recent judgment in Ranadey Micronutrients & Ors. v. Collector of Central Excise (2022) 18 S.C.R. 28, it was held that while the departmental circulars in operation are binding upon the officers of the Revenue, to the extent it is contrary to the statute must be withdrawn by holding as follows:

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“15. There can be no doubt whatsoever, in the circumstances, that the earlier and later circulars were issued by the Board under the provisions of Section 37B, and the fact that they do not so recite does not mean that they do not bind Central Excise officers or become advisory in character. There can be no doubt whatsoever that after 21st November, 1994, Excise duty could be levied upon micronutrients only under the provisions of heading 31.05 as “other fertilisers”. If the later circular is contrary to the terms of the statute, it must be withdrawn. While the later circular remains in operation the Revenue is bound by it and cannot be allowed to plead that it is not valid.” (emphasis added) 11.10 We now proceed to the next stage of consideration. Even if it is held that the mobile towers and PFBs are movable properties and “goods”, the question which still requires to be answered is whether these are “capital goods” within the meaning of Rule 2(a)(A) of the CENVAT Rules. As discussed above, every “good” is not “capital good” within the scope of the CENVAT Rules, but only such goods which come within meaning of sub-Clause (i) of Rule 2(a)(A) i.e. goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90 Heading no. 68.2 and the sub-Heading no. 6801, 6801.1 and 6801.10 of the First Schedule to the Central Excise Tariff Act, which are used for providing output service will be considered as “capital goods” and eligible for CENVAT credit. Sub-clause (ii) of Rule 2(a)(A) provides that pollution control equipment used for providing output service can also be capital goods with which we are not concerned. 11.10.1 However, it may be noted that neither tower nor prefabricated shelter/building (PFB) finds mention under any of the Chapters/Heading specified under sub-clause (i), nor these are pollution control equipment to fall within sub-clause (ii). Hence, these items on their own cannot be said to be “capital goods” within the meaning of sub-clause (i) and (ii) of Rule 2(a)(A).

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11.11 However, it is to be noted that it has been provided under sub-clause (iii) that components, spares and accessories of goods specified in sub-clause (i) and sub-clause (ii) will also be treated as “capital goods” if used for providing output service within the meaning of CENVAT Rules. Therefore, we have to examine whether towers and PFBs which on their own are not “capital goods” within the scope of either of the sub-clauses (i) and (ii) can be considered to be “capital goods” under sub-clause (iii) by virtue of being accessories of any of the “capital goods” mentioned under sub-clauses (i) and (ii) of Rule 2(a)(A). 11.11.1 It is also not the case of the Assessees before us that mobile towers and PFBs are goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, Heading No. 68.02 and sub-Heading No. 6801.10 of the First Schedule to the Central Excise Tariff Act so as to be deemed as capital goods. It is the case of the Assessees that the mobile tower is an accessory of “antenna” which is part of “BTS” and since antenna and BTS fall under Chapter 85 which are “capital goods”, mobile tower being accessory of antenna and BTS is to be treated as “capital good” by virtue of sub-clause (iii) of Rule 2(a)(A). Similar is the case with PFBs. 11.11.2 Since, we have already held that mobile towers and PFBs are not immovable properties and can be treated as “goods”, we have to examine whether these are to be treated as accessories of antenna and BTS (which are “capital goods”) as claimed by the Assessees and if so, being accessory of antenna/ BTS, all these are covered within the meaning of “capital goods” under Rule 2(a)(A) (iii) and since these accessories of capital goods are used for providing output service i.e. mobile service, whether the service providers would be entitled to take CENVAT credit by virtue of Rule 3(i) of the CENVAT Rules. 11.11.3 In this regard, it is to be noted that the stand of the Revenue is that the towers and PFBs have independent functions and existence and have specific utilities and thus these cannot form part of a composite system or a single

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unit and hence they cannot be considered to be accessories of the antenna or BTS in contra-distinction to the plea of the Assessees that these are accessories of antenna and BTS which are “capital goods” falling under Chapter 85 of the First Schedule to the Central Excise Tariff Act. 11.11.4 What is an accessory has been defined in Black’s Law Dictionary, (Fifth Edition) as, “anything which is joined to another thing as an ornament or to render it more perfect, or which accompanies it, or is connected with it as an incident, or as subordinate to it, or which belongs to or with it, adjunct or accompaniment. A thing to subordinate importance. Aiding or contributing in secondary way of assisting in or contributing to as a subordinate.” Similarly, Oxford Dictionary defines “accessory” as: “an extra piece of equipment that is useful but not essential or that can be added to something else as a decoration.” 11.11.5 What comes out from the above dictionary meaning of “accessory” is that any such item which adds to the beauty, convenience or effectiveness of some other items can be said to be accessory of that other thing and it may or may not be essential for functioning of main machinery. Seen from the above perspective what is evident is that the tower is a structure fixed to the earth or building on which microwave antenna is fastened to provide the necessary height and stability to the antenna by making it steady and wobble free. The function of antenna as part of the BTS is to receive and transmit radio signal and is used for providing mobile telecom service to the subscribers. The tower itself is not an electrical component of microwave antenna per-se, yet it is necessary and helps in keeping the antenna at proper height and in a stable position so that the antenna can transmit signals for ensuring uninterrupted and seamless services to the subscribers. It is with the aid of the tower that the potential of the antenna is fully realised, making it function optimally. Without tower,

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antenna cannot effectively function for the purpose it is used. Hence, there can be no doubt that tower is to be considered as an accessory of antenna. 11.11.6 Similarly, the PFB houses other BTS equipment and alternative electricity source in the form of diesel generators and other equipment to provide alternative and uninterrupted power supply to the antenna so that in the event of failure of main power supply, the generator can instantly provide backup electricity supply to the antenna and BTS. The PFBs house electric cables, other equipment related to antenna, BTS and generator. Thus, PFBs enhance the efficacy and functioning of mobile antenna as well as BTS and accordingly, PFBs can also be considered as accessories to the antenna and BTS which are “capital goods” falling under Chapter 85 of the Schedule to the Central Excise Tariff. 11.11.7 That tower is to be treated as an accessory of antenna or BTS and their relationship has been highlighted by this Court in Tata Teleservices Ltd. Vs. Bharat Sanchar Nigam Ltd. & Ors. (2008) 10 SCC 556 wherein the principles of cellular networks have been discussed showing the inter dependency of tower and antenna in the following words, “xi) Principles of Cellular Networks: Mobile communications reached the market in

1980. Even at that time the major challenge was to implement advanced mobility features such as handover, roaming and localization of subscribers which required additional control channels between terminal and serving base station. A cellular network consists of a number of radio cells where the term “cell” refers to geographic coverage area of a BTS. The size of the coverage area depends on the signal strength of the base station and the degree of attenuation. Each BTS is assigned a certain number of channels for transmitting and receiving data which is called as cell allocation (“CA”). To avoid interference between

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cells, it needs to be guaranteed that the neighbouring base stations are also assigned cell allocations of different channels. There are no sharp borders between neighbouring cells. Most of the time they overlap. In urban areas, a mobile device can hear a set of around 10 base stations simultaneously, and then it selects from this set of base station within the strongest signal. The number of cells a network is made up of is basically a function of the size of area to be covered and the user penetration. When building up a new network, operators first concentrate on establishing a coverage in congested urban areas before establishing base stations in rural areas. If a network runs the risk of becoming overloaded in a certain region, the operators can increase the capacity by increasing the base stations density. A cellular network not only consists of base stations but also comprises a network infrastructure for interconnecting base stations, mobility support, service provisioning and connection to other networks like internet. Therefore, a cellular network consists of several access networks, which include the radio equipment which is necessary to interconnect a terminal to the network. The access networks are interconnected by the core network. For example, in GSM, the access network is referred to as Base Station Subsystem (“BSS”) whereas the core network is denoted as Mobile Switching and Management Subsystem (“SMSS”). BSS is responsible for monitoring and controlling the air interface. BSS consists of two different components, namely Base Transceiver Station (“BTS”) and Base Station Controller (“BSC”). BTS stands for “base station”. It contains transmitter and receiver equipment as well as an antenna. The base station is equipped with very limited capabilities for signalling a protocol processing.

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The bulk of the work, for example, allocation and release of channels is done by the BSC. The BSC is mainly responsible for control and execution of handover, a function which is needed to keep a circuit-switched connection if the subscriber moves between base stations. Therefore, each BSC controls several base stations, which are connected to the BSC via fixed lines or radio link systems. On the other hand, mobile Switching and Management System is a fixed network of switching nods and databases for establishing connections from and to the mobile subscriber. HLR and VLR are two important databases which are the foundation of the Numbering Plan in MSC. The switching components are the Mobile Switching Centre (“MSC”) and the Gateway MSC (“GMSC”). The MSC connects a number of BSCs. to the network for the purposes of localization and handover. Thus, it is the MSC which is responsible for serving a limited geographic region governed by all base stations connected to the MSC over their BSCs. In a mobile network, when a connection is to be established it is the MSC which determines another switch depending on the current location of the mobile subscriber. For this purpose, MSC is also connected to local network for each subscriber so as to implement the numbering plan. The area from which the call emanates, the identification of the nature of the call whether from mobile or fixed wireline is all done by the computer having the requisite software in MSC.” 11.11.8 In this regard, we may also note the finding given by the CESTAT which has not been disturbed by the Bombay High Court regarding the contention of the Assessee that towers are essential parts of the antennas and as such without tower, the antennas cannot be placed at appropriate and requisite height to receive and send signals and since

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towers are essential for the functioning of antennas, towers should be treated as accessories of antennas. The CESTAT did not find the said contention of Assessee acceptable on the ground that tower cannot be considered to be a part of antenna, since a component or part of any goods means something which is required to make such goods a finished item. The CESTAT held that only those articles which would go into the composition of another article can be considered to be component or part of the latter and that tower does not enter into the composition of the antenna and hence it is not a component/part of the antenna, relying on the decision of this Court in Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III (2014) 15 SCC 625). In the aforesaid case of Saraswati Sugar Mills (supra) it was held by this Court that anything required to make the goods a finished item can be described as component or part of the finished item. It was held that iron and steel structures would not go into the composition of vacuum pans, crystallizers etc. If an article is an element in the composition of another article made out of it, such an article may be described as a component of another article. Thus, structures in question in the said case did not satisfy the description of ‘component’. 11.11.9 While there can be no dispute about the aforesaid proposition, we are of the view that it cannot be the only criterion to determine what amounts to component of another article. In order for any article to be considered a component of another article, it does not necessarily mean that it has to be consumed or used up for producing the said another article as in the case of a manufacturing process. In our considered opinion, a component of any good would also mean to include those which make the good fully functional and make such a good more effective as observed in M/s. Annapurna Carbon Industries Co. (supra), wherein this Court held that an accessory would mean an object or a device that is not essential in itself but that adds to the beauty or convenience or effectiveness of something else or is supplementary or secondary to something of greater or primary importance, which assists in operating or controlling the said good, and thus serves as its accessory.

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It was thus held in Annapurna Carbon Industries Co. (supra) that, “10. We find that the term “accessories” is used in the schedule to describe goods which may have been manufactured for use as an aid or addition. A sense in which the word accessory is used is given in Webster›s Third New International Dictionary as follows: “An object or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else.” Other meanings given there are: “supplementary or secondary to something of greater or primary importance”, “additional”, “any of several mechanical devices that assist in operating or controlling the tone resources of an organ”. “Accessories” are not necessarily confined to particular machines for which they may serve as aids. The same item may be an accessory of more than one kind of instrument.” 11.11.10 Thus, in our opinion, the restricted meaning of accessory given by the CESTAT and not differed from by the Bombay High Court is not wholly correct in as much as the meaning of accessory can have different ascribed meanings as observed in the aforesaid decision. 11.11.11 There is no dispute to the fact that BTS is a composite system consisting of the transmitter, receiver, antenna and other equipment, and antenna can be said to be an integral part of BTS. As discussed above, and not disputed by the Revenue, tower is needed to keep the antenna at an appropriate height and keep it stable. Without the tower, it is not possible to hoist the antenna at the requisite height and without it being securely fastened to the tower, antenna cannot be kept firm and steady for proper receipt and transmission of radio signals. Thus, there cannot be any doubt that a mobile tower can be treated to be an accessory of antenna and BTS. Accordingly, since in terms of sub-clause (iii) of

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Rule 2(a)(A), all components, spares and accessories of such capital goods falling under sub-clause (i) would also be treated as capital goods, a mobile tower can also be treated as “capital good”. 11.11.12 We, therefore, agree with the conclusion arrived at by the Delhi High Court that towers and shelters (PFBs) support the BTS/antenna for effective transmission of mobile signals and thus enhance their efficiency and since these articles are components/accessories of BTS/antenna which are admittedly “capital goods” falling under Chapter 85 within sub-clause (i) of Rule 2(a)(A) of CENVAT Rules, these items consequently are covered by the definition of “capital goods” within the meaning of sub-clause (iii) read with sub-clause (i) of Rule 2(a)(A) of CENVAT Rules. Further, since these are used for providing output service, i.e., mobile telecommunication service, and since these are “capital goods” received in the premises of the provider of output service as contemplated under Rule 3(1)(i), the Assessees would be entitled to CENVAT credit on the excise duties paid on these goods. 11.12 The alternative plea taken by the Assessee is that these items, viz., mobile tower and the prefabricated buildings (PFBs) are “inputs’ used for providing output service of telecommunication and hence, being “inputs” under Rule 2(k) which are used for providing output service i.e., mobile service, CENVAT credit will be available in terms of Rule 3(1) which provides that a provider of a taxable service shall be allowed to take credit on duties paid on any input received in the premises of that provider of output service on or after 10th September, 2004 and this may be utilised for payment of service tax on any output service under Rule 3(1) read with Rule 3(4) of the CENVAT Rules. 11.12.1 “Input” has been defined under Rule 2(k) to mean all goods used for providing any output service. We have already held that tower and the prefabricated buildings (PFBs) are not immovable property but are “goods”/ “capital goods” within the meaning of Rule 2(a)(A)(iii) and since these are used for providing output service, i.e. mobile service, these can be

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considered to be “inputs” within the meaning of Rule 2(k) and CENVAT credit can be availed in respect of these goods for payment of service tax. The aforesaid definition clause under Rule 2(k) neither puts any condition on it nor any qualifying words have been added to the word “input”, except to mean goods used for providing any output service. Hence, it would mean any “good” which is used as “input” for providing taxable output service. Thus, any item so long it qualifies as a “good” and is “used” for providing output service, would come within the purview of “input” under Rule 2(k) and excise duty paid on such items can be claimed as CENVAT credit which may in turn be used for payment of service tax for the output service provided by the MSPs. 11.12.2 It may be also noted that there must be “use” of such goods to qualify as “inputs”. Without stretching too much the meaning of the words “use” and “input”, it can be said, without any doubt, that tower and PFBs are used for providing output service by way of inputs. The use of tower and PFB cannot be said to be so remotely connected with the output of service that these goods will go beyond the ordinary meaning of “use”. Their usage in providing the output service is not remote but proximate. In fact, without the use of tower and PFB, it is inconceivable that the service provider can provide mobile services effectively. Rather, towers and PFBs are indispensable being accessories of antenna for providing mobile services. In this regard one may refer to the decision in Member, Board of Revenue, West Bengal Vs. M/s. Phelps & Co. (P) Ltd. (1972) 4 SCC 121 wherein it was held that, “6. We have now to find out what exactly is the meaning of the expression “for use by him in the manufacture of goods for sale”. Identical words are used in Section 8(b) of the Central Sales Tax Act 1956. This court was called upon to find out the scope of that expression in M/s. J.K. Cotton Spinning & Weaving Mills Co Ltd. Vs. Sales Tax

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Officer, Kanpur and Anr. (AIR 1965 SC 1310). Dealing with that expression this Court observed: The expression “in the manufacture of goods” would normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression “in the manufacture of goods. In the present case the assessee company has sold the goods in question to certain manufactures who were manufacturing iron steel materials. It is also clear from question no. (i) that those gloves were to be used by workmen who were engaged in hot jobs or in handling corrosive substances in the course of manufacture. That being so it cannot be denied that those gloves had to be used in the course of manufacture.” 11.12.3 It may be noted that in the definition of “input” under Rule 2(k) when it relates to providing output service it has been simply defined as all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and the motor vehicles used for providing any output service. However, when the word “input” is defined relating to manufacture of product, it has been defined in a broad and expensive manner to mean all goods except light diesel oil, high speed diesel oil and motor vehicle spirit commonly as petrol, (i) used in or in relation to the manufacture of final products, (ii) whether directly or indirectly,

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(iii) whether contained in the final product or not, (iv) and includes lubricating oils, greases, cutting oils, coolants, accessories of the final product cleared along with the final products, (v) goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam, used in or in relation to manufacture of final products, (vi) or for any other purpose, within the factory of production. Thus, “input” in relation to manufacturing of final product would mean not only those which are directly used but also indirectly used not only for manufacture of final product whether contained in the final product or not but also used in relation to manufacture of final product or for any of other purpose. However, as mentioned above when “input” has been defined with reference to providing output service, the definition clauses does not explain it so elaborately but merely uses the simple expression i.e. “used for providing any output service”. In our view, even if the definition of “input” with reference to output service may not have been explained in an expansive manner as in the case of manufacture of final product under Rule 2(k)(i), the definition of “input” with reference to providing output service under Rule 2(k)(ii) need not be given a restrictive meaning as sought to be done by the CESTAT by holding that tower is not used directly for transmission of signal. In our view since the subject matter is same, i.e., what amounts to “input” though the end use is for two different products, one tangible, in the form of final manufactured product, and one intangible i.e., output service, applying similar tests to determine what amounts to “input” would not be impermissible. 11.12.4 We have also noted that the Bombay High Court had taken the view that it cannot be said that it is impossible to provide the service without the aid of the towers, thus showing non dependency of antenna on tower.

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In our view, while theoretically antenna may receive and transmit signal without the tower, practically, the same is not feasible and tower is an essential accessory for keeping the antenna at an appropriate height and in a stable position so that there is no disturbance in receiving and transmission of signal and there can be wider coverage of signal. The link between antenna and tower is almost inseparable for the effective functioning of antenna for providing mobile telecommunication service and it cannot be said that the nexus between antenna and tower is remote. Rather, in our view, their relationship is quite proximate and inseparable for proper functioning of antenna. In this regard, we have noted the decision of the Gujarat High Court in Industrial Machinery Manufacturers Pvt. Ltd. vs. State of Gujarat (1965) 16 STC 380 (Guj) wherein the Gujarat High Court held that humidifiers which are used by the textile mills for improving the quality of the yarn produced in general, and even though humidifiers were essentially electric motors and not directly connected with the manufacturing process of yarns, yet these were considered to be machineries for use in the manufacture of yarn. The said finding by the Gujarat High Court was based on the essentiality of the humidifiers. By applying the same principle in the present case, towers and PFBs though themselves are not electrical equipment, are essential for proper functioning of antenna. Thus tower being essential to rendering of output service of mobile telephony, these items certainly can be considered to be “inputs” akin to antenna. Without the towers and the PFBs, there cannot be proper service of mobile telecommunication. Hence, these certainly would come within the definition of “input” under Rule 2(k)(ii). 11.12.5 What we have noted also is that the CESTAT rejected the plea of the Assessee that towers and parts thereof are inputs under Rule 2(k) by observing that the towers are admittedly immovable structures and hence ipso facto non- marketable and non-excisable and these do not lead to manufacture of goods and that towers and PFBs certainly are not used for providing mobile services. By relying on

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Explanation-2 to Rule 2(k) which provides that input includes goods used in the manufacture of capital goods which are further used in the factory of the manufacturer, the CESTAT held that these items are not inputs. However, in our view, invoking Explanation-2 is neither appropriate nor necessary as sub-clause (ii) of Rule 2(k) itself clearly provides that “input” means all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service. Even though tower and the PFBs are not electrical items/equipment in the sense that these do not transmit signals, yet these are indispensable for the effective functioning of antenna by which the radio signals are received and transmitted and accordingly, used for providing the mobile telephonic services to the subscribers. Thus, towers and PFBs, though are not electrical equipment for transmission of signals, yet these are used for transmission of signal by the antennas. Therefore, there can be no denying of the fact that there is a close proximity and nexus between their functioning and the ultimate transmission of radio signals which is the output service rendered by the MSPs. Hence, the view of the CESTAT which has not been disturbed by the Bombay High Court does not commend our acceptance. 11.12.6 Having held that the tower and pre-fabricated buildings (PFBs) are “goods” and not immovable property and since these goods are used for providing mobile telecommunication services, the inescapable conclusion is that they would also qualify as “inputs” under Rule 2(k) for the purpose of credit benefits under the CENVAT Rules. 11.13 For the foregoing reasons, we agree with the conclusions arrived at by the Delhi High Court and uphold the judgment rendered by it in Vodafone (supra) and dismiss the connected appeals being CA No. 5032-5035 of 2021, CA No. 5039-5040 of 2021, CA No. 5038 of 2021, CA No. 5036-5037 of 2021, CA No. 62 of 2022. 11.14 For the same reasons, we are unable to agree with the view of the Bombay High Court and accordingly, set aside the

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judgment in Bharti Airtel (supra) rendered by it and allow the connected appeals, being CA No. 10409-10 of 2014, CA No. 7119 of 2015, CA No. 7179 of 2015, CA No. 1077 of 2016, CA No. 1078 of 2016, CA No. 5112 of 2021, CA No. 1201 of 2018, CA No. 1205 of 2018, CA No. 1203 of 2018, CA No. 1204 of 2018, CA No. 1202 of 2018, CA No. 5056 of 2021 and CA No. 5832 of 2018. Consequently, all the appeals and connected applications are disposed of in terms of the above findings and conclusions.

Result of the case: Appeals disposed of.

† Headnotes prepared by: Divya Pandey