The Hon'ble Delhi High Court in Bharti Airtel Limited & Ors. v. Commissioner, CGST Appeals-1 Delhi & Ors. [W.P.(C) 13211/2024, 14710/2024 & 16477/2024, decided on December 12, 2024] has held that telecommunication towers cannot be classified as immovable property under Section 17(5) of CGST Act, thereby making them eligible for input tax credit.
Facts of the Case:
The dispute arose through three writ petitions challenging the classification of telecommunication towers under GST law. Bharti Airtel Limited challenged an Order-in-Original dated March 24, 2023, which was subsequently affirmed by the Commissioner of Central Tax Appeals-1 through an order dated May 31, 2024. Simultaneously, Indus Towers Limited and Elevar Digitel Infrastructure Pvt Ltd (formerly known as ATC Telecom Infrastructure Pvt Ltd) contested Show Cause Notices raising identical allegations.
The case primarily centered on a Show Cause Notice issued to Indus Towers under Section 74 of CGST Act. This notice demanded tax, interest, and penalty for the period spanning July 1, 2017, to March 31, 2024, encompassing 48 distinct GST registrations across India. Indus Towers' business model involved providing passive infrastructure services to telecommunication service providers, making the classification of these towers crucial to their operations.
The tax authorities sought to deny input tax credit on inputs and input services used in establishing passive infrastructure. Their contention rested on classifying telecommunication towers as immovable property under Section 17(5) of CGST Act. The authorities particularly relied on the Explanation appended to Section 17(5), which specifically excludes telecommunication towers from the definition of "plant and machinery."
The petitioners advanced a technical argument regarding the nature of telecommunication towers. They contended that these towers are essentially moveable equipment that can be dismantled and relocated at will. Their submission distinguished between the concrete base structure, which they conceded might be considered immovable, and the steel/metal structures forming the towers themselves, which they maintained were inherently moveable. The foundation's purpose, they argued, was merely to provide stability against natural elements rather than creating any permanent attachment to the earth.
Issue :
Whether telecommunication towers can be classified as immovable property under Section 17(5) of CGST Act, making them ineligible for input tax credit, particularly in light of the Explanation to Section 17(5) which specifically excludes telecommunication towers from the definition of "plant and machinery"?
Sub-issues:
Whether exclusion from "plant and machinery" definition automatically classifies telecom towers as immovable property?
Whether attachment to concrete base for stability makes towers immovable property?
Whether the six tests laid down by Supreme Court in Bharti Airtel case for determining immovable property apply despite specific exclusion under GST law?
Held by the Court:
The Hon'ble Delhi High Court in Writ Petition (Civil) 13211/2024 & Connected Matters held that:
The Court fundamentally observed that the classification of telecommunication towers required examination through multiple established tests from previous Supreme Court jurisprudence. Drawing extensively from Bharti Airtel Ltd v. Commissioner of Central Excise, Pune [2024 SCC OnLine SC 3374], the Court applied six critical tests: nature of annexation, object of annexation, intendment of parties, functionality test, permanency test, and marketability test. The Court found that telecommunication towers failed to satisfy any of these criteria conclusively.
The Court specifically examined the physical characteristics and construction methodology of these towers. It noted that mobile towers arrive at sites in CKD (Completely Knocked Down) or SKD (Semi Knocked Down) form and undergo assembly on location. Critically, these towers can be dismantled through simple unbolting processes, with any potential damage limited to peripheral equipment like cables rather than the tower structure itself. The Court emphasized that any attachment to earth or buildings serves solely to provide operational stability for signal transmission, not for permanent beneficial enjoyment of the land.
The Court decisively rejected the Revenue's primary argument concerning the Explanation to Section 17(5). It held that the mere exclusion of telecommunication towers from the definition of "plant and machinery" in the Explanation cannot automatically classify them as immovable property. The Court stressed that Section 17(5)(d)'s applicability requires first qualifying as immovable property - a fundamental test that telecommunication towers fail. The Court referenced Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works [(2010) 5 SCC 122] to emphasize that attachment for operational efficiency doesn't create immovability.
Drawing from Sirpur Paper Mills Ltd. v. Collector of Central Excise [(1998) 1 SCC 400], the Court reinforced that merely because a structure is fixed to earth for better functioning, it doesn't automatically become immovable property. The Court observed that this principle applies perfectly to telecommunication towers, where the attachment is purely functional rather than intended for permanence.
Through this comprehensive analysis, the Court concluded that denying input tax credit on telecommunication towers based on their classification as immovable property was legally untenable. Consequently, it allowed the writ petitions, quashing both the orders against Bharti Airtel and the Show Cause Notices issued to Indus Towers and Elevar Digitel Infrastructure.
Pari Materia /Cases Referred:
1. Bharti Airtel Ltd v. Commissioner of Central Excise, Pune [2024 SCC OnLine SC 3374]:
- Conclusively held telecom towers are not immovable property
- Established six tests for determining immovable property
- Affirmed Delhi High Court's view in Vodafone case
2. Vodafone Mobile Services Limited v. Commissioner of Service Tax, Delhi [2018 SCC OnLine Del 12302]:
- Held towers do not qualify as immovable property
- Applied principles of Transfer of Property Act to telecom towers
- Established that attachment for stability doesn't create immovability
3. Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works [(2010) 5 SCC 122]:
- Defined three dimensions of "attached to earth"
- Established tests for permanent beneficial enjoyment
- Differentiated between operational attachment and permanent fixation
4. Sirpur Paper Mills Ltd. v. Collector of Central Excise [(1998) 1 SCC 400]:
- Clarified that attachment for operational efficiency doesn't create immovability
- Applied marketability test to assembled machinery
- Distinguished between assembly and permanent attachment
Relevant Sections:
- Section 17(5) of CGST Act, 2017
- Section 74 of CGST Act, 2017
- Section 3 of Transfer of Property Act, 1882
- Section 3(36) of General Clauses Act, 1897
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