Background and context
In a decision, the Supreme Court of India, in the context of indirect tax laws, revealed the significance and impact of the movability trait of a property as regards its tax implications. The issue involved was regarding the availability of input tax credit (ITC) which materially hinges upon the nature of a property. The decision dealt with a legacy issue stemming from the erstwhile central excise and service tax laws but has significant implications on the goods and services tax (GST) laws as well, these laws being inspired by the erstwhile law’s provisions regarding many areas of law including ITC. In this case, the Supreme Court had an occasion to deep dive into the salient features of property law to opine upon the tests to be applied under the fiscal laws and the consequential availability of ITC. This article seeks to highlight the continued relevance of centuries old legislations which govern sale of goods, transfer of property, etc. which are nonetheless contemporary in the context of modern age fiscal legislations as well.
The decision was in Bharti Airtel Ltd. v. CCE . The issue was whether towers and other paraphernalia which are erected at site by telecommunication service providers in order to provide their services would qualify as immovable property. If the answer is in the affirmative, no ITC entitlement would arise. However, if the answer is in the negative, they would continue to be treated as movable property and they would be eligible for ITC. Applying the definitions under the , , and the jurisprudential delineation of these definitions, the Supreme Court has culled out the relevant tests which are to be applied to pragmatically differentiate between movable and immovable property.
Dispute before the Supreme Court and its decision
In this case the Supreme Court was confronted with divergent views of High Courts as regards “towers” and “prefabricated buildings” (PFB) constructed by service providers to provide telecommunication services. The Bombay High Court had taken a view that the towers and PFBs being affixed to earth were in the nature of immovable property. Taking a contrary position, the Delhi High Court had concluded that they continued to remain a movable property. The Bombay High Court decision resulted in denial of ITC to these service providers as ITC is available only to “inputs” or “capital goods”, both of which are confined to movable property. However, the Delhi High Court specifically confirmed the availability of ITC to these service providers. The appeals against decisions of both the High Courts were taken up for consideration together by the Supreme Court which resulted in this decision in Bharti Airtel case .
The decision is an elaborate one, which deep dives into the statutory provision and the precedents to cull out the tests required to be applied to determine whether a particular property is movable or immovable in nature. These tests are specifically relevant in the context of construction activities which result into various products, all of which may not be immovable properties. Thereafter, these tests have been applied to test the nature of towers and PFBs in the factual paradigm to discuss whether these constitute movable or immovable property.
Noting that there was convergence in the definition of “goods” under various legislations, which principally seemed to echo the definition under the , the Supreme Court meshed together the said definition along with the definition of “movable property” under the and definition of “immovable property” under the to delineate that the outcome of a conjoint reading of these statutory prescriptions was that “goods” are always in the nature of “movable property” and, vice versa, immovable property cannot qualify as “goods”. Furthermore, the decision holds that those properties which “are not rooted in the earth, nor imbedded in the earth nor attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached” cannot be immovable properties and can qualify to be movable properties and thereby be described as “goods”.
The decision acknowledges that the antenna for providing telecommunication services are not just “mounted and affixed at proper height, to make these stable” but they are also “attached and fastened to the earth or building to provide stability to the same and to make antennas unshakable due to wind, rain or any other external force(s)”. Thus, the task which fell next for determination by the Supreme Court was to ascertain whether in spite of the property being affixed to earth it can nonetheless qualify as movable property and thus be described as goods. To this end, relying upon its earlier decisions, the Supreme Court culled out the following tests to distinguish whether a particular property which is affixed to earth is in the nature of movable or immovable property;
11.8.1. 1. Nature of annexation: This test ascertains how firmly a property is attached to the earth. If the property is so attached that it cannot be removed or relocated without causing damage to it, it is an indication that it is immovable.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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 the aforesaid legal tests to the factual paradigm before it, the Supreme Court noted a peculiarity in respect of mobile towers and PFBs that,
11.9.4 … tower, after being assembled and fixed to the earth or a building can be dismantled without any change in the nature of the tower, and the tower can be removed and shifted to any other location as per the needs and requirements of the service provider and also can be re-sold in the market in the same form….
In this process of dismantling, the Court noted, there was hardly any damage to the structure. Thus, the Supreme Court concluded that while ostensibly the tower and PFBs are affixed to earth to be arguably described as immovable property, that may not be the legal consequence in the wake of the aforesaid judicially evolved tests. Concluding upon the legal position, the following observations of the Supreme Court are instructive in appreciating the manner in which the legal tests are to be applied in a given factual paradigm:
11.9.6. The tower which is affixed to the earth and thus appears to be immovable, can be dismantled from the existing site and reassembled without causing any change in its character. It can be moved to any other place and also sold in the market. These attributes negate the permanency test, which is a characteristic of immovable property. The tower when fixed to the earth or the building or the civil foundation by nuts and bolts does not get assimilated with the earth or building permanently. Such affixing is only for the purpose of maintaining stability of the tower and keep it wobble free so that the antenna which is hoisted on it can receive and transmit the electromagnetic signals effectively and without any disturbance. Affixing of the tower to the earth or building is not for the permanent beneficial enjoyment of the land or building, but to make it stable for effective functioning of the antenna for seamless rendering of mobile services by the service provider to the consumers/subscribers. Same is the case with prefabricated buildings (PFB).
11.9.7. If we thus apply the functionality test, it can be stated that the attachment of tower to the earth/building is not for the benefit of the land or the building but for better functioning of the antenna which is fixed on the tower. Thus, based on functionality test it can be said that tower is a movable property ….
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11.9.9. Applying the tests of permanency, intendment, functionality and marketability, it is quite clearly evident that these items are not immovable but movable within the meaning of Section of the read with Section of the .
If we consider 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.
It is also to be noted that the attachment of the tower to the building or the land is not for the permanent enjoyment of the building or the land.
Further, 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.
The fact that the tower, if required can be removed, dismantled in the completely knocked down (CKD) and semi-knocked down (SKD) and sold in the market is not disputed.
Application of the tests evolved and discussed above on these items clearly points to the movability as opposed to immovability of these items. We are, thus, of the view that mobile towers and PFBs are movable properties and hence, “goods”.
In the above premise, the Supreme Court followed its earlier decision in Solid and Correct Engg. Works v. CCE to conclude that the towers and PFBs could not considered as immovable property and continued to remain as movable property, or “goods”.
Implications and way forward
This decision of the Supreme Court, albeit in the context of taxation laws, has overarching implications, in various contexts, some of the key aspects being discussed below, where in all the cases there is a common refrain that there is a need to revisit treatment qua movable versus immovable property.
(a) Property law context
In view of the fact that that the decision evolves certain tests to delineate the distinction between movable and immovable property, even the past transactions and their treatment need to be revisited because the distinction is crucial for various reasons. To exemplify, there are different legal regimes which apply to movable and immovable property. To illustrate, sale of movable property (broadly represented under the omnibus umbrella of “goods”) is governed by the ; whereas immovable property transactions are largely regulated by the framework under the . Additionally, immovable property transactions (unlike transactions in movable property) are generally the subject-matter of stamp duty laws, registration requirements, etc. Thus, given that the Supreme Court has revisited its earlier decisions to cull out the applicable tests to distinguish between the movable and immovable properties, there is an urgent need to revisit the past treatment meted to these transactions (lest they be held vitiated or improper in the wake of these tests) and also refine the way forward as regards the future transactions.
(b) Direct tax context
The carries various provisions which prescribe a distinct tax treatment depending upon the nature of property and is movability attribute. For illustration, Section 194-IA thereof obliges deduction of tax at source upon “payment on transfer of certain immovable property other than agricultural land”. The provision defines immovable property to mean “any land (other than agricultural land) or any building or part of a building”. In view of the outcome of this decision, the immediate question which arises is whether the towers and PFB would be covered within the scope of this provision, would they be considered “building” or part of a building so as to be covered within the scope of this provision. Admittedly this definition under the (1961 Act) is a sui generis definition which does not take recourse to the meaning under the or for that matter even to the . Nonetheless, the generic principles emanating from the decision of the Supreme Court in this decision call upon the determination of the issue whether the decision applies to various species of property which, in view of the decision, may no longer be considered as immovable and thus can be argued as being distinct from “building” on which they are affixed. If so, the application of the provision would be subject to challenge.
In the above context, it is relevant to highlight that there is an entire chapter, being Chapter of the which deals with “acquisition of immovable properties in certain cases ….” This Chapter contains a much wider definition of “immovable property”. However, other provisions of the define immovable property differently. Also noteworthy is the fact that, the 1961 Act adopts stamp duty value in order to ascertain the tax implications limited to certain immovable property transactions, besides encapsulating tax consequences for other distinct immovable property transactions, such as “part performance”. In brief, even though the decision of the Supreme Court is in the context of indirect taxes, it nonetheless carries implications even in direct tax paradigm as the distinction between movable and immovable property is maintained even thereunder.
(c) Pre-GST indirect tax legislations
Prior to the enactment of the GST laws, the indirect tax laws were subject specific, for illustration sale and purchase of goods were taxed under value added tax (VAT) legislations, rendition of services was subject to levy of service tax under Chapter V of the , etc. These laws invariably interfaced with immovable property as well. For that matter, the instant decision is an illustration how the ITC provisions under the service tax law interfaced with immovable property. Besides ITC, there were many other areas of interface. For illustration, after this decision it is clear that even though telecommunication tower and PFB were annexed to the land/building, they continued to remain movable property. Thus, any sale of telecommunication tower and PFB as such (i.e. without dismantling) would attract VAT, their sale being considered as sale of goods and would not be regarded as sale of immovable property, as has been one of the perceptions prevailing in the industry. Thus, even though the decision has been rendered much after the repeal of these pre-GST indirect tax legislation effective from July 2017, nonetheless the decision will impact a number of pending disputes under these legislations insofar as the transactions carry shades of movability or immovability, as the case may be, basis the tests enumerated by the Supreme Court in this decision.
(d) Impact in GST law context
Even under the GST laws, which comprehensively replace the erstwhile indirect tax legislation, there are specific references to immovable property. For example, a particular species of supplies — “works contract” — is limited in scope only to transactions relatable to immovable property. Thus, similar to the ITC provisions under the pre-GST indirect tax legislation (as addressed in this decision) even in context of GST there are limitations on ITC qua immovable properties. Furthermore, depending upon whether a property qualifies are immovable property or not, the characterisation of supply changes. Also, while certain species of immovable property, namely, “land” and “building” are excluded from the coverage of GST, transfer of “goods” is almost holistically covered under GST in one form or the other. In other words, the decision has serious implications in GST law context as it implies revisit to all past transactions and careful review of proposed activities to delineate the nature of property being transacted (in view of the tests evolved in this decision) and thereafter arrive at the relevant tax consequence.
In addition to the aforesaid, this decision has ignited an intense debate on the GST implications regarding ITC on telecommunication towers and PFBs in view of a specific provision which seeks to debar the ITC thereon. This provision inter alia encapsulates “land, building or any other civil structures” and “telecommunication towers” as within scope of “plant and machinery”, the latter being linked to “immovable property”. In other words, the provision presumes that inter alia telecommunication towers are in the nature of immovable property, a presumption which this decision turns on its head. Thus, a raging debate has arisen on the interpretative standards to be applied in order to position telecommunication towers and PFBs within the GST ITC framework.
The aforesaid aspects, which are only illustrative in nature, reveal how the decision of the Supreme Court in Bharti Airtel case has stirred the law on the subject necessitating a revisit to a variety of scenarios and transactions which had seemingly attained status of settled law in the past by reinvigourating the centuries old distinction between movable and immovable property.
*Advocate, Supreme Court of India; LLM, London School of Economics; BBA, LLB (Hons.) (Double Gold Medalist), National Law University, Jodhpur. The author can be reached at mailtotarunjain@gmail.com.
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Bharti Airtel Ltd. v. CCE, (2014) 1 HCC (Bom) 68 : .
Vodafone Mobile Services Ltd. v. CST, .
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The Supreme Court decision refers to definitions contained in the following provisions: , S. ; , S. (d); , S. 2(22); , S. (i); , S. ; , S. (f); , S. (14); and , S. .
, S. , which states that,
2. (7) goods means every kind of movable property other than actionable claim and money; and includes stocks, shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. (mark as RI1)
, S. , which states that “movable property, shall mean property of every description, except immovable property”.
, S. , which states that “immovable property does not include standing timber, growing crops or grass”. In the decision, the Supreme Court also referred to , S. which states “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”.
Bharti Airtel case, , para 11.6.
Bharti Airtel case, , para 11.9.3.
Inter alia in CCE v. Solid and Correct Engg. Works, ; Sirpur Paper Mills Ltd. v. CCE, ; Triveni Engg. & Industries Ltd. v. CCE, , etc.
Bharti Airtel case, .
Bharti Airtel case, .
Bharti Airtel case, . The relevant paras observe as under:
11.9.5. The tower is brought to the site in CKD or SKD form and assembled at the site. If it is to be dismantled, it only involves unbolting of the nuts and bolts. Dismantling the tower may entail some damages, but such damages will be on the cables which may be required to be stripped of but no damage is caused to the tower. If one says that there may be some damage caused, it will be with reference to the BTS which consists of the antenna, connected by cables and other electrical equipment. But there is no damage to the tower per se. Similarly, in case of PFB, there is no damage to it, though damage may be caused to the wiring or cables connecting the various parts of the base transceiver system (BTS) or the base station subsystem (BSS)”.
Bharti Airtel case, .
Solid and Correct Engg. Works case, . The following observations of this decision were cited with approval:
25. It is evident from the above that the expression “attached to the earth” has three distinct dimensions, viz: (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 imbedded for the permanent beneficial enjoyment of that to which it is attached. Attachment of the plant in question with the help of nuts and bolts to a foundation not more than 1½ ft deep intended to provide stability to the working of the plant and prevent vibration/wobble free operation does not qualify for being described as attached to the earth under any one of the three clauses extracted above. That is because attachment of the plant to the foundation is not comparable or synonymous to trees and shrubs rooted in earth. It is also not synonymous to imbedding in earth of the plant as in the case of walls and buildings, for the obvious reason that a building imbedded in the earth is permanent and cannot be detached without demolition. Imbedding of a wall in the earth is also in no way comparable to attachment of a plant to a foundation meant only to provide stability to the plant especially because the attachment is not permanent and what is attached can be easily detached from the foundation. So also, the attachment of the plant to the foundation at which it rests does not fall in the third category, for an attachment to fall in that category it must be for permanent beneficial enjoyment of that to which the plant is attached. It is nobody’s case that the attachment of the plant to the foundation is meant for permanent beneficial enjoyment of either the foundation or the land in which the same is imbedded.”
, S. inter alia subsumes “any land or any building or part of a building, and includes, where any land or any building or part of a building is transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also”
within the scope of immovable property and, the provision further clarifies that “land, building, part of a building, machinery, plant, furniture, fittings and other things include any rights therein”.
For illustration, , Explanation (d)(i) to S. (vii) limits immovable property to “land or building or both”.
For illustration, , Ss. and .
For illustration, see , S. (v).
, S. .
, S. . See also, Commr. (CGST) v. Safari Retreats (P) Ltd., .
For illustration, see , Sch. (a), which limits its coverage to “renting of immovable property”.
, Sch. .
See generally, , cls. (a) to (c) of Sch. .
Explanation to , S. .
For illustration, see Somesh Jain, “ITC on Telecommunication Towers: Bharti Airtel (SC) Implication in GST Regime”, available at which briefly discusses the alternate scenarios and their interpretative implications.
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