Vodafone Idea and Bharti Airtel stocks in focus as SC ruling lifts tax credit restrictions

Telecom stocks like Vodafone Idea, Bharti Airtel, and Indus Towers are set to remain in the spotlight today following a significant Supreme Court ruling. The apex court has granted telecom companies the right to claim Input Tax Credit (ITC) on duties paid for infrastructure components such as tower parts and green shelters. This marks a major victory for the sector, reversing a Bombay High Court judgment that previously denied these credits by classifying the items as non-capital goods.  

The decision is expected to provide financial relief to leading players, including Tata Teleservices and Reliance Communications, by reducing the tax burden associated with infrastructure expenses. It resolves a decade-long dispute over whether items like shelters, office furniture, and ground-fixed towers qualify for tax credits.  

Previously, tax authorities argued these items were not directly linked to the provision of telecom services, deeming them ineligible for Cenvat credits. The Bombay High Court had also ruled that such items constituted independent functions or immovable property, further disqualifying them from tax benefits.  

The Supreme Court's judgment, however, aligns with earlier conflicting rulings by other courts, which had recognized these infrastructure components as integral to telecom operations. This uniformity is expected to ease the financial constraints for telecom companies, allowing better allocation of funds for network expansion and service enhancement.  

With this ruling, telecom players may witness improved market sentiment, as investors factor in the reduced compliance costs and potential operational benefits. Shares of Vodafone Idea and Bharti Airtel could see heightened activity as the market reacts to this development.