New Delhi: In a significant victory for telecom companies, the Supreme Court on Wednesday ruled in favour of Bharti Airtel and other operators, allowing them to claim central value-added tax or Cenvat credits on duties paid for key infrastructure items like tower components, shelters, and other related materials.
This decision overturned a 2014 ruling by the Bombay high court, which had classified these items as non-capital goods, and thereby denied telecom companies the ability to claim the credit.
The ruling by the bench of justices B.V. Nagarathna and N. Kotiswar Singh on Wednesday aligns with the previous views taken by various high courts, including a 2018 judgment by the Delhi high court that favoured the telcos' claim over the credits, differing from the stance of the Bombay High Court.
This ruling is seen as a major win for telecom giants like Bharti Airtel, Vodafone, Tata Teleservices, Reliance Communications, and Indus Towers, granting them the right to claim tax credits previously considered ineligible.
At the core of the dispute was whether telecom operators could claim Cenvat credits for duties paid on items such as tower parts, shelters, prefabricated buildings, office chairs, and printers, which are integral to telecom services. The tax authorities had challenged the eligibility of these items for the credit, arguing they were not directly used in telecom service provision.
The issue dates back to 2006, when the tax authorities issued a show-cause notice to Bharti Airtel, claiming that the company had wrongly applied Cenvat credits on goods like towers and office equipment. The authorities contended that these items were not essential for providing telecom services and that Airtel had not submitted adequate documentation proving their use in operations.
In 2014, the Bombay high court ruled in favour of tax authorities, saying that the items in question were not capital goods and could not qualify for Cenvat credit. The court said these items performed independent functions and could not be considered part of a unified capital asset, eligible for tax credits. It also ruled that towers, once affixed to the ground, were considered immovable property and therefore ineligible for Cenvat credits.
However, in 2018, the Delhi high court ruled that telecom towers and shelters were not permanently affixed to the earth and could be dismantled and reassembled elsewhere, making them eligible for the credit. The court concluded that these items were critical for providing telecom services, particularly supporting base transmission systems, and should qualify as capital goods.
Hailing today's judgement, the Cellular Operators Association of India (COAI), said the apex court's order will not only help the industry in meeting compliances, but also reduce the financial burden on the sector.
The Supreme Court’s judgement affirms “the telecom industry’s entitlement to claim the credit for taxes and duties paid on towers and its parts, including green shelters”, said S.P. Kochhar, director general of COAI, which represents private sector telecom services providers in the country.
Digital Infrastructure Providers Association, which represents telecom and internet infrastructure providers in the country, said in a statement that the judgement marks a watershed moment for India's digital infrastructure sector as the ruling provides crucial financial relief to infrastructure providers.
“The judgment will release substantial working capital that can be strategically reinvested in infrastructure development, while simultaneously reducing the overall cost of service delivery across the sector. This financial flexibility will enable faster deployment of digital infrastructure in underserved areas, addressing critical connectivity gaps in rural and remote regions,” said Manoj Kumar Singh, director general of DIPA.
He said the ruling aligns with the government's Digital India initiatives and 5G rollout plans, providing the necessary financial framework to accelerate India's digital transformation journey.
The association had made several representations asking the government to treat more than 810,000 telecom towers as essential plants and machinery, such that their critical role in enabling digital connectivity is recognized.
"The decision will not only release more cash for tower companies but lead to reduced cost of telecom infrastructure development, paving the way for enhanced, expeditious deployment, ultimately benefiting the end consumers with improved connectivity.," said Prashant Singhal, TMT leader for emerging markets at EY.
