Introduction:

In the case, M/S Bharti Airtel Limited v. Commissioner, CGST Appeals-1 Delhi (and batch) [W.P.(C) 13211/2024], the Delhi High Court delivered a pivotal judgment clarifying that mobile/telecommunication towers are movable properties and therefore eligible for availing input tax credit under the Central Goods and Services Tax (CGST) Act, 2017. A division bench comprising Justices Yashwant Varma and Girish Kathpalia addressed the contentious issue of whether telecom towers fall within the ambit of Section 17(5) of the CGST Act, which restricts input tax credit for goods and services used in constructing immovable properties. The petitioners, including Bharti Airtel, challenged the GST Department’s characterization of telecom towers as immovable property, contending that these towers are movable equipment, capable of being dismantled and relocated. The High Court, relying on precedent and established legal principles, concluded that telecom towers do not satisfy the “test of permanency” and are thus movable properties eligible for input tax credit.

Arguments of Both Sides:

The petitioners, led by Bharti Airtel, argued that telecom towers are critical equipment in the telecommunication industry, designed for mobility and capable of being dismantled, relocated, and resold without altering their inherent nature. They contended that such towers qualify as “capital goods” under Rule 2(k) of the Cenvat Credit Rules, 2004, and thus fall within the scope of inputs eligible for tax credit under the CGST Act. The petitioners relied on judicial precedents, including the Supreme Court’s ruling in Bharti Airtel Ltd v. Commissioner of Central Excise, Pune (2024), which conclusively established that telecom towers are movable properties. Additionally, they cited the Delhi High Court’s earlier judgment in Vodafone Mobile Services Limited vs. Commissioner of Service Tax, Delhi (2018), where the court ruled that telecom towers do not meet the “test of permanency” required to qualify as immovable properties. On the contrary, the respondents, representing the GST Department, argued that telecom towers are excluded from the definition of “plant and machinery” under Section 17(5) of the CGST Act. They claimed that this statutory exclusion signifies that telecom towers were intended to be treated as immovable properties, thereby making them ineligible for input tax credit. The respondents emphasized the Explanation in Section 17(5), which explicitly excludes telecom towers from the scope of “plant and machinery,” asserting that this exclusion reflects the legislature’s intent to categorize them as immovable property.

Court’s Judgment:

The Delhi High Court, after thoroughly analyzing the arguments, statutory provisions, and relevant precedents, ruled in favour of the petitioners. The court reiterated the principles laid down by the Supreme Court in Bharti Airtel Ltd v. Commissioner of Central Excise, Pune (2024), emphasizing that telecom towers are movable properties that can be dismantled, relocated, and resold without altering their fundamental structure or functionality. The bench dismissed the respondents’ contention that telecom towers should be treated as immovable properties merely because they are excluded from the definition of “plant and machinery” under Section 17(5) of the CGST Act. It clarified that the exclusion of telecom towers from “plant and machinery” does not automatically render them immovable properties. For such a classification to hold, telecom towers must first satisfy the legal criteria for immovability, which they do not. The court relied on the “test of permanency,” a legal principle used to determine whether an object qualifies as immovable property. It explained that telecom towers, despite being affixed to the earth or buildings, lack the requisite permanency as they can be dismantled and moved without altering their essential characteristics. The judgment also highlighted the functional and economic rationale for treating telecom towers as movable properties. The court emphasized that telecom towers are essential equipment in the telecommunication industry and their inherent design allows for flexibility in location and reuse, aligning with the nature of movable properties. The bench further clarified that the exclusion of telecom towers from “plant and machinery” under Section 17(5) was merely a legislative choice to categorize them differently for specific tax purposes and not an indication of their immovable nature. The High Court also addressed the applicability of Section 17(5)(d) of the CGST Act, which restricts input tax credit for goods and services used in the construction of immovable property. It concluded that since telecom towers do not qualify as immovable property, the restrictions under Section 17(5)(d) do not apply to them. Therefore, the petitioners are entitled to avail input tax credit on telecom towers as movable properties under the CGST Act. The judgment has been hailed as a significant step in clarifying the tax treatment of telecommunication infrastructure, offering much-needed relief to telecom service providers.