As a remedy for mobile service providers, the Supreme Court on Wednesday ruled that telecom companies can avail CENVAT credit for payment of service tax on output services offered by them.

The CENVAT Credit Rules, 2004 refer to the set-off that manufacturers can avail if they use certain specific inputs procured after paying excise duties to produce their products.

The landmark judgment of the apex court held that mobile service providers also fall under the ambit of CENVAT credit rules as they pay excise duty on various items to set up their business, especially for the construction of peripheral units such as mobile towers and prefabricated buildings (PFBs).

A bench comprising Justices BV Nagarathna and N Kotiswar Singh resolved the decade-old dispute that arose after the Bombay High Court’s 2014 verdict, which held that mobile service providers (MSPs) were not entitled to claim CENVAT credit on mobile towers and prefabricated buildings .

However, in 2018, the Delhi High Court held that towers and other related structures like PFBs fall within the definition of “capital goods” and are “inputs” as defined under the CENVAT Rules and hence MSPs are entitled to credit on excise duty . Paid for installation of mobile towers and PFBs.

The dispute between the two high court judgments moved to the Supreme Court, which upheld the 2018 judgment of the Delhi High Court and held that “towers and PFBs are ‘properties’ and not immovable properties and as these properties are used to provide mobile telecommunications.” considering the services, the inevitable conclusion is that they will also qualify as ‘input’ under Rule 2(k) for the purpose of credit benefits under the CENVAT Rules.

Delivering his first judgment since his elevation to the Supreme Court on July 18, Justice Singh was congratulated by Justice Nagarathna for delivering the verdict in the matter.

Justice Singh, in his 76-page judgment written on behalf of the bench, said that although towers and PFBs are not electrical items/equipment in the sense that they do not transmit signals, they are indispensable for the effective functioning of the antenna. It is a device used to receive and transmit radio signals and, accordingly, to provide mobile telephone services to subscribers.

“So although towers and PFBs are not electrical equipment for signal transmission, they are used in signal transmission through antennas. Hence, it cannot be denied that there is a close proximity and connection between their functions and the final transmission of radio signals, which is the output service offered by MSPs.

“Therefore, the opinion of CESTAT, undisturbed by the Bombay High Court, does not commend our acceptance,” the bench said. he said.

It was stated that for the effective operation of the antenna in providing mobile telecommunication service, the connection between the antenna and the tower is almost inseparable, and the connection between the antenna and the tower cannot be said to be remote.

The board added that the relationship between them is very close and inseparable for the antenna to function properly. Agreeing with the Delhi High Court’s conclusion that towers and bunkers (PFBs) support the antenna for effective transmission of mobile signals and thereby increase their efficiency, the bench said these items are components or accessories of the antenna and are undoubtedly “capital assets”. falling under Rule 2(a)(A) of the CENVAT Rules.

“Furthermore, since these are used for providing output service, i.e. mobile telecommunication service and these are ‘capital goods’ acquired on the premises of the output service provider as contemplated under Rule 3(1)(i), the Board of Assessors held that they are entitled to CENVAT credit on excise duty paid on these goods.” He stated that he would win.

The top court said that without the tower, it would not be possible to lift the antenna to the required height and without secure attachment to the tower, the antenna cannot be kept sturdy and stable for proper reception and transmission of radio signals.

“Therefore, there can be no doubt that a mobile tower can be considered as an accessory of the antenna and BTS. Accordingly, in accordance with clause (iii) of Rule 2(a)(A), all components, spare parts and accessories (i) It was stated that such capital goods falling within the scope of this clause will also be considered as capital goods, and a mobile tower can also be considered as ‘capital good’.

He said that the limited meaning of accessory given by CESTAT and not differentiated by the Bombay High Court was not entirely correct as the meaning of the accessory could have different ascribed meanings.

Many mobile companies and network service providers approached the top court seeking an authoritative clarification due to differing views of the Delhi and Bombay high courts.