M/S BHARTI AIRTEL LTD. Vs. COMMISSIONER OF CENTRAL EXCISE, PUNE

JUDGEMENT

(1.) The core issue involved in this set of appeals is whether the mobile service providers (MSPs) who pay excise duties on various items for setting up their business more particularly for erection of mobile towers and peripherals like pre-fabricated buildings (PFBs) etc. can take the benefit of CENVAT Credit under the CENVAT Credit Rules, 2004 (hereinafter referred to as the "CENVAT Rules") for the purpose of payment of service tax on the output services rendered by them. With respect to the same, conflicting views have been given by two High Courts, namely the High Court of Bombay and High Court of Delhi. The Bombay High Court has ruled against the MSPs, favouring the Revenue, holding that MSPs are not entitled to CENVAT credit on mobile towers and prefabricated buildings. Whereas, the Delhi High Court has held to the contrary extending the benefit of CENVAT credit to the MSPs. The decisions of both the High Courts have been challenged before this Court by the respective aggrieved parties, by way of the present set of appeals.

(2.) Most of the Assessees before us are mobile service providers (MSPs). The MSPs typically provide sim cards to the subscribers either in physical or electronic form, on activation of which the subscribers are able to enjoy wireless telecommunication service. For rendering these services, the service providers usually own and operate the infrastructure such as cell towers, Base Transceiver System (BTS) along with accompanying network equipment and structures like prefabricated building (PFBs), electricity generating sets (gensets), battery back-up and stabilisers for uninterrupted power supply to ensure seamless telecom service to the subscribers.

(3.) The process of mobile telecommunication begins when a subscriber uses a wireless mobile handset which is also known as Mobile Station (MS) to make a call after activation of the sim card. The mobile handset, which is a radio equipment, performs the signal processing function of digitizing, encoding, error protecting, encrypting and modulating to transmitted signals. When it receives signals from other mobile stations, it performs the inverse functions. The mobile handset sends a signal, an electromagnetic wave, which is a modulated version of the user's voice or data. The signal emanating from the handset is received by the antenna mounted on the tower. Thereafter, the signal received by the antenna is sent through cables to the Base Station Sub-system (BSS). BSS is a set of base station equipment like Base Transceiver Station (BTS) and Base Station Controller (BSC). BSC essentially controls one or more BTS or BS. Base Transceiver Station (BTS) housed at the base of the tower is kept in secured and safe conditions in the prefabricated house or building (PFB). The BTS then converts the electromagnetic signal into a digital format that can be processed by the network. The processed signal is then transmitted to the mobile switching centre (MSC). The MSC then routes the calls or data to the destination through another tower or series of towers and by a reverse process of conversion from digital mode to electromagnetic wave, the signal is received at the destination.