ITC and Immovability of Capital Goods Redefined by the Supreme Court in the case of Bharti Airtel
- fabgyan2018
- Dec 12, 2024
- 7 min read
In the landmark judgement of Bharti Airtel, Hon'ble Supreme Court has held that Mobile Towers are not Immovable Property and accordingly CENVAT is admissible in the Central Excise Regime. In the judgement, Supreme Court has beautifully defined the meaning of Immovable Property. Therefore, Judgement becomes very important in GST Regime also. (Copy of the Order is given in the end of the Article)
Accordingly, We will analyse the Judgement especially related to the concept of Immovable Property as which is more relevant in the GST Regime.
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We have divided the Article in three parts:
Key Legal Provisions related to ITC on Capital Goods in GST
In GST, ITC on capital Goods is available if it is used or intended to be used in the furtherance of business except it is blocked in Section-17. Due to inclusion of intended to be used, ITC is even available during construction phase of capital goods subject to other conditions prescribed in Section-16 & 17.
As per Section-17(5)(c) & (d), ITC on construction of Immovable Property is not allowed except if it is construction of Plant & Machinery.
The word "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property. It means, if expenses related to repairs/renovation/reconstruction etc. of Immovable property is capitalised in books of account, it would be considered as construction of said Immovable Property and accordingly, ITC eligibility needs to be examined based on nature of such Immovable Property . In case such expenses are expense off in books of account, ITC will be eligible even if it is pertaining to Building.
Plant & Machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
It means, assets given in these three categories will not be considered as Plant & Machinery and accordingly, ITC will not be allowed.
However, in the case of Bharti Airtel, Hon'ble SC has held that Telecom Towers are not immovable property but a movable property at the first instance. Accordingly, if we borrow the said decision in GST regime, ITC will be allowed even if it is excluded from definition of Plant & Machinery because applicability of definition of Plant & Machinery for ITC is only related to the Immovable Property.
For movable property, ITC is automatically allowed except inadmissible in terms of other provisions contained in Section-16 & 17.
Now we will discuss the salient criteria to decide whether an Asset is an Immovable Property or Movable Property as decided in said case by the Hon'ble Supreme Court.
Key points of Hon'ble SC Judgement related to Immovable Property
Definition of Goods in CGST Act (Section 2(52)):
“goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Definition of Movable Property
Immovable Property has not bee defined in GST Act. Accordingly, Section 3(36) of General Clause Act needs to be referred which defines Movable Property as:
“movable property” shall mean property of every description, except immovable property;
Definition of Immovable Property
Immovable Property has not bee defined in GST Act. Accordingly, Section 3(26) of General Clause Act needs to be referred which defines Immovable Property as:
“immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;
Now each word of the above definition needs to be analysed to examine whether any property is a movable Property or Immovable Property.
Definition of Attached to the Earth
The term attached to the earth has been defined in Section-3 of Transfer of Property Act
“attached to the earth” means—
(a) rooted in the earth, as in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of walls or buildings; or
(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached:
Hon'ble Supreme Court Prescribed following criteria to decide whether any property is attached to the earth or not:
Capable of being Taken to Market & Sold
In case, property is being able to bring to the market & sold, it remains a movable property, otherwise it becomes Immovable Property.
For this, it needs to be ascertained that
If the goods that were fixed to the earth were capable of being dismantled without doing any damage or change in the nature of goods, it would indicate the “absence of permanency” and such a good cannot be deemed to be immovable property.
Now question arise how to decide whether any damage or change in nature of goods would happen or not while dismantling. In this regards, Supreme Court has held that:
What is important to be noted is that the damage is qua the Asset (Tower) or cables connecting the various components, but not the tower itself or PFB with which we are concerned. If the tower or the PFB can be dismantled and relocated in another site without causing any damage to either the tower or PFB, the mobility or the marketability of these items is retained. Thus, as far as the tower and PFBs are concerned, these exhibit the character of a movable property.
Here Key points which needs to be ascertained is whether at the time of dismantling, any damage to the main asset is caused or just to the ancillary items like foundation, bolts, cables etc. In case, there is no damage to main asset, it would be considered as movable otherwise immovable.
Further, Court held that
Merely because certain articles are attached to the earth, it does not ipso facto render these immovable properties. If such attachment to earth is not intended to be permanent but for providing support to the goods concerned and make their functioning more effective, and if such items can still be dismantled without any damage or without bringing any change in the
nature of the goods and can be moved to market and sold, such goods cannot be considered immovable.
Other Factors
Object of annexation: If the attachment is for the permanent beneficial enjoyment of the land, the property is to be classified as immovable. Conversely, if the attachment is merely to facilitate the use of the item itself, it is to be treated as movable, even if the attachment is to an immovable property.
Intendment of the parties: The intention behind the attachment, whether express or implied, can be determinative of the nature of the property. If the parties intend that the property in issue is for permanent addition to the immovable property, it will be treated as immovable. If the attachment is not meant to be permanent, it indicates that it is movable.
Functionality Test: If the article is fixed to the ground to enhance the operational efficacy of the article and for making it stable and wobble free, it is an indication that such fixation is for the benefit of the article, such the property is movable.
For instance, the machine was fixed and attached to the earth primarily for the purpose of providing wobble-free operation of the machine and held that there was no necessary intent to make the same permanent, thus, it does not amount to permanently fixing, embedding as attachment in the sense that would make the machine a part and parcel of the earth permanently. Accordingly, it remains movable Property.
Permanency Test: If the property can be dismantled and relocated without any damage, the attachment cannot be said to be permanent but temporary and it can be considered to be movable.
Marketability Test: If the property, even if attached to the earth or to an immovable property, can be removed and sold in the market, it can be said to be movable.
Accordingly, Hon'ble SC decided that Tower is not immovable property because:
The nature of annexation of the tower to the earth, it is seen that the annexation is not for permanent annexation to the land or the building as the tower can be removed or relocated without causing damage to it.
the attachment of the tower to the building or the land is not for the permanent enjoyment of the building or the land.
the tower is fixed to the land or building for enhancing the operational efficacy and proper functioning of the antenna which is fixed on the tower by making it stable and wobble free.
that the tower, if required can be removed, dismantled in the CKD and SKD and sold in the market is not disputed.
Accordingly, it was held that mobile towers and PFBs are movable properties.
Applicability of decision to other kinds of Assets
In recent times, Department has raised demand considering many assets as immovable like Air Handling Units, Centralized AC Units etc. as immovable property considering that they are required to be dismantled for moving from one place to another.
However, as per this Judgement, in our opinion, these assets can be considered as movable in case it can be proved that at the time of dismantling there will not be damage to the main asset though there may be damage to ancillary items like fitting, foundation etc.
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Copy of the Order
Disclaimer: We have tried to simplify the Hon’ble Court Decision based on our understanding purely for academic purpose not for any professional advice in any manner what so ever. In case, there is any mistake in understanding of the order, we are apologised to the Hon’ble Court. Further, before taking any decision based on this judgement, it is advised that original order may please be referred.
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