Mobile phone operators like Vodafone, Reliance Communications and Idea will not be able to claim credit for the excise duty paid on the items used in their towers to meet the final service charge liability with the Central Board of Excise and Customs (CBEC) on Thursday asking all field officers to deny the facility.
The board’s decision is prompted by a favourable decision the tax department recently obtained from the Bombay High Court, which upheld the Pune Central Excise Commissioner’s move to deny the use of duty credit by Bharti Airtel.
CBEC told the top field officers to ensure strict compliance of the ruling in all similar cases. The apex policy making body for indirect taxes is taking several steps to ensure that Cenvat credit rules are not abused by businesses, a practice widely prevalent in sectors such as iron and steel.
The court reasoned in the Bharti case that excise duty paid on parts of mobile towers can be used to meet the output tax liability of only those engaged in the manufacturing business, not those in the business of providing services such as mobile telephony. The court stated that mobile phone parts did not fall within the definition of capital goods for telecommunication service providers or qualified as inputs for the sake of claiming tax credit.
“The circular highlights the Bombay High Court’s decision in Bharti Airtel’s case disallowing treatment of telecom towers as capital goods or as inputs for cenvat credit purposes. Ideally, the cenvat credit rules should be amended and the definition of capital goods should be broadened to avoid such anomalies,” said Saloni Roy, senior director, Deloitte India.