Telecom operators including Bharti Airtel, Vodafone India, Idea Cellular and Reliance Jio Infocomm have been served notices for exaggerated credit claims under the Goods and Services Tax, said two people familiar with the development.
The indirect tax department has issued notices to all the major telecom companies, including tower companies, for claiming additional transitional credit for capital expenditure incurred under GST. The companies also got separate notices for adding education, Swachh Bharat and Krishi Kalyan cess to their transitional credit balances. The department suspects the companies may have claimed credit even in cases where they are not eligible, such as for capital expenditure incurred prior to July 1, 2017, when GST was introduced.
Under current rules, service companies can seek tax credit on capital expenditure — there was no such concept for services earlier — and use them to offset their GST liability. Telecom companies had claimed input credit for capital expenditure on erecting towers, cell sites and switching equipment.
The department alleged that telecom companies claimed credit even on capital expenditure partially incurred after GST was introduced. “In some cases, companies had completed 90% of the work but that did not reflect on their books. But 100% of the capital expenditure came on their books after July 1 as they can claim credit,” said a tax official.
Tax experts said validating the claims may be tough because revenue officials will have to go figure out the timeline of capital expenditure for thousands of cell sites. “The verification of transition credit claims would be a difficult task, depending on the industry and the nature of the claims. While the tax authorities have every should not be subjected to undue hardship in the process,” said MS Mani, a partner at Deloitte India.
“GST legislation allows input tax credit of tax paid on immovable plant and machinery — but has specifically excluded mobile towers from the definition of plant and machinery for this purpose. The industry’s point of view — based on facts — is that towers are not immovable property given that they can and are in fact easily movable from one place to another,” said Uday Pimprikar, partner,tax and regulatory services, EY India.
According to people aware of the matter, the department has disallowed about Rs. 4,000 crore claimed by top telecom companies. The average credit claimed by a company ranges between Rs 800 crore and Rs.1,000 crore, for which tax notices were served.
Detailed questionnaires emailed to Reliance Jio, Vodafone, Airtel and Idea on Monday did not elicit any response. ET reported on December 14 that telcos were under scrutiny for inflated tax credits.