By Gajendra Maheshwari and Priyamwada Sinha

Background

The Supreme Court of India, in the case of Bharti Airtel Ltd. v. The Commissioner of Central Excise, Pune[1] has declared telecom towers as movable property.

The issue under consideration was whether towers qualified as “capital goods” and/ or “inputs” for availment of CENVAT Credit by mobile service providers and infrastructure providers.

Since mobile towers and prefabricated buildings (PFBs) did not fall under actionable claims and money nor within the inclusive clause of the definition, it was essential to determine whether they were “movable property”.  To resolve the issue, the Court first examined whether mobile towers and PFBs could be classified as movable property in the form of “goods”. While deciding this issue, the Court laid down key principles determining movability vs. immovability of a property.

The Court firstly relied upon the definition of “goods” under Sale of Goods Act, 1930 which defines goods as movable property excluding actional claims and money and included stocks, shares, growing crops, grass, and things attached to forming part of the land which are agreed to be severed before sale or under contract of sale.

Test of movability vs. immovability

The Court, thereafter, referred to its previous judgments wherein certain tests were applied in order to determine whether a property was movable or immovable. In this regard, the Court referred to the case of Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works[2] wherein the Court had applied the functionality test and observed that if a machine is fixed to a foundation merely to provide a wobble free operation to the machine and the intention is not to permanently attach it to the earth, it cannot be treated as immovable property.

The Court also referred to the case of Triveni Engineering & Indus Ltd. v. Commissioner of Central Excise[3] wherein the Court had applied the marketability test to observe that if goods are capable of being dismantled without any damage or change in the nature and be sold in the market, then they cannot be treated as immovable property.

Basis these and other judicial precedents, the Court laid down the following principles for determining whether a property is movable or immovable:

• Nature of annexation: If the property attached to the earth cannot be removed or relocated without causing damage to it, it is an indication that it is immovable.
• Object of annexation: If the attachment is not for the permanent beneficial enjoyment of the land but 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: If the intention behind the property in issue, whether express or implied, is permanent addition to the immovable property, it will be treated as immovable. But if the intention is not for the property to be permanent, it indicates that it is movable.
• Functionality test: If the property can be dismantled and relocated without any damage, the attachment is temporary and 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.

Applying these principles to telecom towers the Court made the following observations:

• Nature of annexation: The attachment of the towers to the earth/ building is not for the permanent annexation to the land or the building as the towers can be removed or relocated without causing damage to it.
• Object of annexation: The attachment of the towers to the building or the land is not for the permanent enjoyment of the building or the land.

• Intendment of the parties: The towers are fixed to the land or building for enhancing the operational efficacy and proper functioning of the antenna which is fixed on the towers by making them stable and wobble free.

• Functionality test: The towers, after being assembled and fixed to the earth or a building can be dismantled without any change in the nature of the tower, thereby satisfying the functionality test. Further, attachment of the towers to the earth/ building is not for the benefit of the land or the building but for the better functioning of the antennas which are fixed on the towers.

• Marketability test: The towers can be removed and shifted to any other location as per the needs and requirements of the services provider, and can be re-sold in the market in the same form, thereby satisfying the marketability test.

Accordingly, the Court held that telecom towers are a movable property and qualify as “goods”.

Impact of the Judgment

This landmark judgment holds significant implications beyond the Service Tax regime, particularly under Goods and Services Tax (GST). The input tax credit (ITC) on telecom towers is generally considered to be blocked under Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act).

However, the judgment in the case of Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd.[4] has clarified that “plant and machinery” under Section 17(5)(c) and “plant or machinery” under Section 17(5)(d) are different. Now, the Bharti Airtel (supra) judgment has further established that telecom towers do not qualify as immovable property. Therefore, a combined reading of Safari Retreats (supra) and Bharti Airtel (supra) suggests that ITC on towers and PFBs could be permissible in the GST regime.

Beyond GST, this judgment could be useful in both tax (i.e. Income Tax, Stamp duty), and non-tax matters where the issue involved is concerning movable vs. immovable nature of a property.

[1] Civil Appeal No.s10409-10410 of 2014

[2] (2010) 5 SCC 122

[3] (2000) 7 SCC 29

[4] Civil Appeal No 2948 of 2024