Telecom stocks mixed after SC allows to claim tax credits on infra duties

Bharti Airtel and Indus Towers shares rose in the early trade, while Vodafone Idea slipped after SC allowed telcos could avail themselves of central value-added tax (cenvat) credit on infra

Telecom stocks-- Bharti Airtel, Indus Towers, Vodafone Idea--traded mixed in morning deals on Thursday (November 21) after the Supreme Court (SC) ruled these companies can avail tax credits for duties paid on infrastructure like towers, parts, shelters, printers, and chairs, against the service tax they pay for providing cellular services.

 

Around 9:18 AM, Indus Towers' share price was up 1.61 per cent, and Bharti  Airtel was up 0.53 per cent on BSE. However, Vodafone Idea was down 0.42 per cent. In comparison, the BSE Sensex was down 0.57 per cent at 77,133.82. 

 

On Wednesday, the Division Bench of Justices B V Nagarathna and N Kotiswar Singh overturned a 2014 Bombay High Court (HC) ruling, which had said that telecom companies could not avail themselves of central value-added tax (cenvat) credit on infrastructure for offsetting the service tax paid on cellular services. This ruling aligns with the views of several other high courts (HCs), particularly the 2018 Delhi HC decision.

 

Cenvat allows a manufacturer to utilise the credit of excise duty/additional duty paid for the procurement of input services to pay off the excise duty on his/her final product or output services.

  

“Having held that towers and prefabricated (prefab) buildings are ‘goods’ and not immoveable property, and since these goods are used for providing mobile telecommunications (telecom) services, the inescapable conclusion is that they qualify as ‘inputs’ under Rule 2(k) for credit benefits under the Cenvat Rules,” the court observed.

 

Until now, the government had mandated that telecom companies pay excise duties on various items necessary for setting up their businesses, particularly for the erection of mobile towers and associated peripherals like prefab buildings. However, it restricted them from claiming cenvat credit under the Cenvat Credit Rules, 2004, to offset service tax payments on the output services they provided.

 

The scheme allows manufacturers and service providers to offset taxes paid on inputs, capital goods, and input services against taxes payable on their final product or service. It was designed to avoid the cascading effect of taxes — where tax is levied on tax at various stages of production or service provision. This, in turn, helps lower the price of finished goods for consumers and reduces manufacturing costs for producers. 

 

There had been conflicting views from the Bombay and Delhi HCs on this matter, which were challenged before the SC by both the telcos and revenue. The key legal question was whether tower parts and shelters qualify as ‘capital goods’ or ‘inputs’ under the Cenvat Rules and whether towers can be considered components of capital goods.