Supreme Court Favours Telecom Companies On Tax Credits, Providing Financial Relief To Boost 5G Deployment

In a landmark judgment on Wednesday (20 November 20), the Supreme Court of India ruled in favor of telecom companies, allowing them to claim Central Value-Added Tax (Cenvat) credits for duties paid on crucial infrastructure items such as tower components and green shelters.

This decision marks a significant victory for key players like Bharti Airtel, Vodafone, Tata Teleservices, and Indus Towers, potentially reducing their financial burdens and strengthening the sector. It resolves a long-standing tax dispute, affirming the telecom industry’s entitlement to Cenvat credits on infrastructure inputs.

The ruling, delivered by a division bench of Justices B V Nagarathna and N Kotiswar Singh, upholds a 2021 Delhi High Court decision while overturning a 2014 Bombay High Court verdict that had denied these credits. The earlier Bombay High Court judgment classified towers and related materials as non-capital goods, thereby deeming them ineligible for tax benefits.

The dispute dates back to 2006, when tax authorities issued a show-cause notice to Bharti Airtel, challenging its claim of Cenvat credits for items such as towers, prefabricated buildings, and office equipment.

Authorities argued that these items were not directly involved in telecom service provision and therefore ineligible for tax credits. In 2014, the Bombay High Court ruled in favor of the tax authorities, declaring that towers, being immovable property, could not qualify as capital goods for Cenvat credits.

However, the Delhi High Court in 2018 took a different stance, concluding that telecom towers and shelters are integral to telecom services and can be dismantled and reassembled, thereby qualifying as capital goods.

The Supreme Court’s decision aligns with the Delhi High Court’s reasoning, affirming the critical role of such infrastructure in enabling telecom services. It is expected to release substantial working capital for telecom companies and infrastructure providers, which can be reinvested in network expansion and technology upgrades.

Analysts believe the ruling will support the rapid deployment of 5G technology and the expansion of digital connectivity to rural and remote areas, addressing critical gaps in India’s digital infrastructure.

The Cellular Operators Association of India (COAI) and the Digital Infrastructure Providers Association (DIPA) hailed the Supreme Court’s judgment, emphasising its positive implications for the financial health of the telecom sector.

Lt Gen (Retd) Dr S P Kochhar, Director General of COAI, welcomed the decision, stating it would alleviate financial pressures and streamline compliance for telecom operators. He noted that the ruling reinforces fairness and consistency in taxation, providing much-needed relief to the industry.

DIPA’s Director General Manoj Kumar Singh highlighted the broader impact of the ruling, emphasising its alignment with the government’s Digital India initiatives and 5G rollout plans. Singh said the judgment provides critical financial relief to infrastructure providers, enabling faster deployment of digital infrastructure in underserved regions. He added that this would accelerate the digital transformation of India while reducing the cost of service delivery.

Prashant Singhal, TMT leader for EY’s emerging markets division, remarked that the judgment would lower the cost of telecom infrastructure development, enabling faster deployment and ultimately benefiting consumers through improved connectivity. Industry experts view this development as a catalyst for the growth of India’s digital economy, positioning the sector for long-term sustainability and innovation.