Customs, Excise and Gold Tribunal - Mumbai
B.P.L. Mobile Communications Ltd. And ... vs Commissioner Of Central Excise on 9 September, 2005
ORDER S.S. Sekhon, Member (T)
1. These appeals, on the core issue determination of levy of duty, on Base stations under the Central Excise Act 1944, are being disposed by this common order after hearing both sides.
1.2 i) Appellant companies herein are engaged in providing Cellular Telephonic Services, all over a designated licensed area. This Mobile Telecommunication Service (MTS for short) is provided in Mumbai, Navi Mumbai & Kalyan Telephone districts as in the case of M/s Hulchinson Max Telecom (P) Ltd in appeal no E/3459 to 3461/04, which are not materially different in other cases and are being considered only for ease of reference.
ii) MTS is based on Global system for mobile communication (for short GSM) The basic infrastructure required for GSM, is similar in all other networks. The system is, to conceptually consist of-
a) Mobile Stations (for short MS), the commonly known handset carried by a consumer. They communicate, only via the nearest BS, at a given time, using FDMA, TDMA, CDMA technology. It consist of Mobile Equipment (ME) & Mobile Subscriber Identity Module (SIM card) which stores specific data such as list of frequencies & current LAL, International Mobile Subscriber Identity (IMSI) + ISDN, personal identification number (PIN) & Authentication key & other short storages of comings telephone number etc, it permits separation of User Mobility from Equipment mobility.
b) Base stations (for short BS) which covers a certain geographical transmission area called CELL & is allocated a portion of the total number of channels available. A cluster of nearby BS's, could together use all available channels. Also known as BASE Transceiver Station (BTS), they are equipped with various equipment to render the function of signalling & data channels & error protection.
c) Multiples of BTS are controlled by Base Station Controller (BSC) performing the function of ratio resource man argument. BSC assigns & releases frequencies and time slots for all the MSs in the area, reallocation of frequency among cells & handing over protocol is executed at BSC along with other function of Power Management of BTS & MS.
d) BSC's are in turn networked into Mobile Switch Centre (MSC) & through Operation Support Subsystems perform the switching mode. There can be several such MSCs in a Network, connecting to Public Network i.e. International Cable Lines, Local Cable Network or other Mobile Networks.
iii) Thus a GSM Architecture consists of Radio Station Sub Systems (constitution of MS, BTS & BSCs) which are networked with the operation support subsystem (constituted by MSCs) which networked with the Public network.
1.3 The entire sub systems of BTSs or BSCs or MSCs and the number of constituents would depend on the Geographical Area covered by a Cellular Network & there is no fixed designated numbers to constitute a component of Transmission Apparatus.
1.4 Appellants had imported a fixed number of BTS equipment and procured duty paid peripheral equipments such as battery back up, Rectifiers, UPS, they were taken to various sites selected on top of tall buildings/structures & installed in a cabin (generally prefabricated & bought out) with inner cabling & antennae on towers. The erection process as submitted to be -
i) Based on various parameters like IS codes for structure, loading factors, factor of safety, wind speed, permissible twist, permissible sway, manufacturers of towers either themselves or through specialized agencies fabricate the tower design, specific to site /customer requirements. Based on tower foundation and tower designs, order is separately placed on civil contractors, suppliers of tower material and tower erectors. These parties clear towers/components on payment of duty from their factories. Foundation team of the civil contractors construct the foundation as per the design provided, which is specific to a particular location. After organizing the material at the site, the tower is erected.
ii) The activity or tower erection starts with building the civil foundation. The columns of the tower are embedded into the civil foundation to give strength and immovability to the tower so as to support the dead load and the tilt load. The tower is actually formed by connecting all the L angled metal pieces of right shape, size and length as per the design drawings. The main legs, which are also basically L angled metal prices, are fixed to the foundation stubs/Anchor bolts and joined with bracing members to form the base structure. In certain cases these legs are even welded to the stub and the foundation bolts. All the connecting members are then added in a systematic way piece by piece, tightened and aligned for vertical and horizontal stability.
iii) After completing the basic tower all the nuts and bolts are once again tightened to the full torgue to make sure the final structure is secure and stable. Vertically test is conducted. The climbing ladder is then fixed using nuts and bolts at the appropriate location on tower where proper holes have been drilled for the specific purpose.
iv) a) The cable tray for supporting the cables are then fixed.
b) The antenna mounts are then pulled along the tower upto the required and prepanned height and direction and fixed on a suitable leg so that the antenna can be installed.
c) Lightening arrester, is installed and connected to the Earth pit. Aviation lamp is installed and powered up using electricity from the systems on the ground. v) The tower is then cleaned, suitable primer applied to all the metal surface of the tower and then painted with paint as per IS1 specification.
Finally the tower is inspected, as per the checklist designed by the company for confirmation of proper execution of the job. The entire activity is completed in about 30-45 days.
vi) Cell site/BTS site and BSC site erection consists of-
a) The BTS room with the boundary wall for a site having specific size is built. In this BTS room, BTS, radio equipment, antenna, shelter, battery back up, rectifier, etc are installed at specific places. These equipments are later connected by cabling, complete wiring is done for the building.
b) Similarly, the BSC site is also construted housing various equipments in a prefabricated building and connecting these equipments by cabling.
1.5 i) Demands have been raised only on BTS/BSCs coming within the jurisdiction of a Commissioner out of the entire network of DTS/BSC cells & other subsystems established by the appellants. The show cause notice in para 7 alleged that BTS site consists of weather proof enclosure (Shelter) which shall house the various equipments together with antenna and tower were erected and the BTS site with the tower is to be treated as transmission apparatus falling under Heading 8525 of the Central Excise Tariff. The show cause notice further alleges that after installation of various equipments they perform the ultimate function of communication with mobile station/phone traveling within the specified area and also act as relay station for voice data between the mobile station/phone and mobile switching centre to a site of radio frequency.
ii) The show cause notice further alleged that the BTS/BSC site give service to a local area for operation of cellular mobile telephone and all these base stations when linked by means of microwave transmission links from central switching exchange forms a cellular mobile telephony networks and therefore each of the cell sites have a new identity characters and use distinct from the inputs/equipments/components used for its assembling/manufacturing.
iii) The show cause notice relied upon note 6 to Section XVI of Central Excise Tariff Act, 1985 in terms of which in respect of goods covered by the said section, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article (including 'blank' that is an article not ready for direct use, having the approximate shape or outline of the finished article or part and which can only be used, other than in exceptional case, for completion into the finished article or part) into complete or finished article shall amount to manufacture. iv) The show cause notice accordingly alleged that the assembling and installation of various components to constitute a base station, which performs the function of a transmission apparatus, shall amount to manufacture.
v) In order to allege that the said base stations are moveable, the show cause notice referred to the statement of the Project Manager of the appellants that there were occasions when due to the local problems/technical problems the appellants had dismantled the electrical and civil work and shifted the equipments to other site. Accordingly, the show cause notices alleged that the base station/cell site itself can be moved from one place to another and therefore it is not immovable.
1.6 After considering the material the Commissioner, found BTS/BSC sites in question to be movable & the installation activity at site would amount to manufacture ; the duty demands were confirmed & penalty imposed. Hence the appeals.
2.1 After hearing both sides & considering the material it is found -
a) Revenue does not contest or dispute the fact that whenever BTS/BSC site has to be relocated, all the equipment like BTS/BSC, Microwave Equipment, batteries, Control panels, air conditioners, UPS, tower antennae are required to be dismantled into individual components, then they are to be moved from existing site & reassembled at new site. This would, involve damage to certain parts like cable trays, etc which are embedded/fixed to the Civil structure & the bare components of tower/antennae if that be so, then following the settled position of the law on excisability in such cases, as held by the apex court in Triveni Engineering Industries Ltd & Boards subsequent orders vide circular no 58/1/2002-CX dtd 15/1/2002, especially para 5 (thereof which as a whole & para 4 (vi) thereof & would induce us to conclude that the installation & erection of a subsystem for BTS/BSC will not constitute to attract duty under Section 3 of the Central Excise Act 1944 as no manufacture of a new commercial goods, as understood under the Central Excise Act took place by such an installation /erection of BTS/BSC cell site.
b) The Commissioner in the impugned order erred in holding that on assembly of various equipment like towers, microwave antenna etc. the BTS/BSC site has emerged. Mere connection of individual equipments like BTS, Microwave equipments, air conditioners, battery backup which are having individual function, at site will not result in new product to have come into existence. Each equipment performs its function and plays no part in the function of the other. Hence there was no new system of product which emerged. The Hon'ble Supreme Court in case of Moti Laminates Pvt Ltd v. CCE reported at has specifically held that for a product to be liable to excise duty, the process by which it has emerged should amount to manufacture and mere specification of the products name in the Central Excise Tariff, will not be a reason to hold that such product is liable to duty.
c) The impugned order at para 35 and para 42.2 had placed reliance on note 6 to Section XVI of Central Excise Tariff Act, 1985 in order to allege that the activity undertaken at the site would amount to manufacture. In terms of note 6 to Section XVI, in respect of goods covered by Section XVI, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article shall amount to manufacture. The show cause notice had not elaborated as to how note 6 has relevance to the present case. By this reason itself the reliance placed on this note is wholly misplaced. The impugned order confirming the demand of duty based on note 6 is therefore incorrect and unsustainable in law. In any event of the matter, the aforesaid note 6 would apply only where an incomplete or unfinished article having essential character of complete or finished article is converted into complete or finished article. In the present case, according to the show cause notice the finished article is BTS/BSC site. There is no such item available in the market as incomplete /BTS/BSC site. Therefore, the first condition that there must be a conversion of an article which is incomplete or unfinished into complete or finished article, is not satisfied in the present case. Even if it is presumed for the sake of argument that BTS/BSC site is a finished article, there was no article which was incomplete or unfinished coming into existence at the site and which had been converted or finished article. At the site, various complete in themselves equipments, which have individual functions, have been placed /erected at the designated places in the prefabricated building/room or a room built. Further, the tower has been erected piece by piece and on the tower certain equipments have been fitted. Thereafter, all these equipments and tower has been connected by cable and wire. These activities cannot be treated as conversion of an article which is incomplete or unfinished, but having the essential character of complete or finished article converted into complete or finished article. Therefore, the provisions of note (to Section XVI of the Central Excise Tariff Act 1985 is wholly inapplicable to the present case. Note 6 to section XVI cannot be made applicable to BTS/BSC site since the same are immovable property. The reliance on note 6 is therefore wholly misplaced. The impugned order confirming the demand of duty on BTS/BSC site is therefore unsustainable in law. d) The relevant portion of the show cause notice bringing out the item on which duty is demanded is as under -
From the foregoing paragraph, it appears that :
i) the final product, namely, Transmission Apparatus' for radio telephony i.e. BSC/BTS/MSC cell site" is distinct from the components used in the manufacture/assembling of the said "base Station Controller/Base Transceiver Station Cell Site/ Mobile Switching Centre ".
ii) the said final product has been separately specified in the Central Excise Tariff as excisable under chapter Sub-heading no 8525.00.
iii) The assembling and erection of the said Transmission Apparatus has been done at site by use of mechanical means in such manner, so that it could be dismantled without substantial damage to Us components and can be reassembled at site, if required.
iv) The said Transmission Apparatus is capable of being sold or shifted in original form or in the dismantled condition.
v) All such Transmission apparatus have been manufactured/assembled at sites, which have been acquired on lease/rental basis. The corresponding legal agreements threeof specifically deal with the moveable nature of the said equipment, which manifests with the intention of the party with regards to the temporary nature of embedment of such Transmission Apparatus at site. It, therefore, appears that the Transmission Apparatus known as "BSC/BTS/MSC cell site' erected at site completely and comprehensively satisfy all conditions detailed in instructions issued by the Board under Section 37B of the Central Excise Act, 1944 vide Order no 58/1/2002-CX dtd 15/1/2002 with respect to Durability of goods manufactured at site The aforesaid extract from the show cause notice clearly shows that the show cause notice had proposed to hold the entire BTS/BSC site (which is a prefabricated building/shelter in which the transceiver unit microwave equipments along with the other peripheral equipments are housed), along with the tower, as the transmission apparatus of heading 8525. The activity of the building the house/room, installation of the aforesaid equipments and connecting of these equipments has been treated in the show cause notice as the process amounting to manufacture of such transmission apparatus. These sub system by themselves cannot perform on there own Transmission process required for Mobile cells without the Networking required. The reliance on Boards instruction is misplaced.
e) In the judgement in the case of Triveni Engineering & India Ltd v. CCE reported at , the Hon'ble Supreme Court has categorically laid down as under:
20. The marketability test requires that the goods as such should be in a position to be taken to the market and sold and from the above findings it follows that to take it to the market the turbo alternator has to be separated into its components - turbine and the other alternator-but then it would not remain turbo alternator, therefore, the test is incorrectly applied. Though, there is no finding that without fixing to the platform such turbo alternator would not be functional, it is obvious that when without fixing, it does not come into being, it can hardly be functional.
In view of the aforesaid judgment, the so-called BTS/BSC site erected, installed and commissioned by the contractors of the company cannot be construed as marketable goods manufactured by the appellants since they cannot go to the market as such. BTS/BSC site are not marketable for another reason alse. For installation of every BTS/BSC, License from WPC/SACFA a wing of Department of Telecommunications, Government of India has to be obtained, which invariably is user specific and site specific, meaning thereby if one wishes to sell the site to another user, it is not permissible under law, as the approval granted by the aforesaid authority for the frequency allocation and the site is for the user only and the purphaser would have to reapply for the license for that site. It cannot be sold /purchased marketed untendered & be equated to marketable goods. BTS/BSC site therefore, are neither marketable nor capable of being marketed.
f) At any rate the appellants are not manufacturers. The appellants are engaged in providing cellular mobile services by virtue of a license granted by Government of India under the provisions of Section 4 of Indian Telegraph Act, 1885. Thus, their activity is purely service oriented. For providing this service, all the requisite equipment/ apparatus are either imported or indigenously procured on payment of duty. The appellants submit that Cell site is a station like Radio station and TV station. Thus, Cell site is a transmission station housing various equipment and a tower erected nearby and fitted with GSM and microwave antenna. This station receives and transmits signals from cell phones and exchanges and thus, establishes a network of mobile cellular communication. The Cell site receives and transmits signals from and to individual mobile cellular phones at the TV and the Radio Stations transmits or telecasts to individual television/radio sets. In such circumstances, the activity of installing and commissioning cell site cannot be an activity of either of manufacture and no marketable goods arise. None of the requirements of Section 3 of Central Excise Act fulfilled. We find force in these submission.
2.2 In the view of the finding arrived that the said subsystem sites are not goods manufactured freely marketable nor the appellants a manufacturer, we do not propose to go into the alternate Plea of eligibility to benefit under notification 67/95 CE as capital goods. The plea is attractive but finds no need to be decided in these cases. Similarly the plea of time bar & interest is not gone into since we find no duty demand could be effected in this case sites BTS/BSC not being excisable. We also do not find any material to equate the fixed sites on buildings as in this case with vehicle mounted such sites being shown by Ld. DR.
2.3 The question of duty interest & penalty as arrived in all these case therefore will not survive.
3.1 In view of the findings arrived of no exisibility of BTS/BSC fixed sites on buildings, we would set aside the orders in all these appeals & allow them for the same reasons.
3.2 All appeals allowed after setting aside the orders impugned.
3.3 Ordered accordingly.
(Pronounced in court on 9/9/2005)