ATM Management Service To Banks Are Pure Services, No VAT Payable: Karnataka High Court Quashes Re-assessment

The Karnataka High Court has quashed the re-assessment and held that ATM management services to banks are pure services and will not attract Value Added Tax (VAT).

The bench of Justice S.R. Krishna Kumar has observed that the transaction is a pure service transaction, not entailing any transfer of property or effective control of the goods to the recipient. The various terms of the Agreements with the Banks disclose that the only intent of the contract is the provision of ATM management services, for which the petitioners deploy ATMs and other assets at various sites across India. The petitioners use the ATMs and other assets merely as a means for providing ATM management services to banks.

The petitioner/assessee is in the business of providing ATM Management Services for various banks at the pan-India level and undertaking end-to-end services for the banks. The petitioner has paid Service Tax on the entire value of the contractual consideration received from banks on account of the rendering of the services and has also been regularly filing returns with the Service Tax Authorities.

The department sought to levy VAT by passing the Assessment Orders and Demand Notices by ignoring the gamut of services provided by the petitioner and treating the transaction as a "financial lease". Therefore, holding it to be a transfer of the right to use the ATM Machines and a "deemed sale of goods," which is not only without jurisdiction or authority of law but also illegal, arbitrary, and contrary to the material on record, deserves to be quashed.

The issue raised was whether the department has jurisdiction to levy VAT on ATM Management Services provided by the petitioner to various Banks across the State of Karnataka on which the petitioner has already paid Service Tax.

The department contended that the sale of goods is affected after incorporating it into a structure and when connected to a bank network. It is only on the basis of a successful integration certificate, i.e., acceptance by the bank, that the petitioner’s payment terms come into play. The property of ATM infrastructure is passed on to the bank immediately after successful integration and certification by the bank-appointed person. If there is a termination of services by the petitioner, it cannot recover the goods but is entitled to the price of the goods based on the agreed price. When there are goods, acceptance of goods, consideration for the goods, and also a transfer of the title to the goods, it would be taxable under the KVAT Act and not service tax.

The department contended that service tax is payable only in respect of services, and there is a clear demarcation in the Finance Act for excluding the turnover of goods. Under the ATM management services to banks, only services relating to management activities are taxable and not the goods transferred, i.e., ATMs and equipment. It is therefore submitted that there is no merit in the petitions and that they are liable to be dismissed.

The court noted that it is nowhere evident that the ATMs and equipment at any stage are transferred or delivered to the banks, and neither does the possession get transferred to the bank. The petitioners, throughout the tenure of the agreement, continue to provide ATM Management services to the banks deploying and using the ATMs and equipment. Delivery or transfer is sine qua non to the levy of VAT. However, no delivery, but only deployment, takes place. The petitioners not only have possession but are also in effective control of the ATMs and equipment. If it were neither in possession nor in effective control over the ATMs and equipment, the petitioners would have been unable to provide the services.

Case Title: FIS Payment Solutions And Services India Private Limited Vesrsus The State Of Karnataka

Case No.: Writ Petition No. 9550 Of 2020 (T-RES)

Citation: 2023 LiveLaw (Kar) 296

Date: 17/03/2023

Counsel For Petitioner: D.R. Ravishankar

Counsel For Respondent: Hema Kumar

Click Here To Read The Order