Relief for Airtel, Vodafone, Tata Tele as Supreme Court grants tax credit on infra items

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. 

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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. 

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