The Karnataka High Court while dealing with a writ petition has held that the transfer or delivery of ATM Management Services to banks does not attract VAT (Value Added Tax) when service tax has been already levied.

The Court was deciding a case wherein the petitioner i.e., a company prayed to call for the records pertaining to its matter and to set aside two orders passed by the Deputy Commissioner of Commercial Taxes.

A Single Bench of Justice S.R. Krishna Kumar noted, “… the undisputed material on record, in particular the agreements also make it unmistakeably clear that it is nowhere evident that the ATMs and equipment at any stage are transferred/delivered to the banks and neither does the possession get transferred to the bank. The petitioners all through out the tenure of the agreement continues to provide ATM Management services to the banks deploying/using the ATMs and equipment. Delivery/transfer is sine qua non to attract levy of VAT. However, no delivery but only deployment takes places.”

The Bench said that the petitioners not only have possession but are also in effective control of the ATMs and equipment and that if it was neither in possession nor in effective control over the ATMs and equipment, the petitioners would have been unable to provide the said services.

Senior Advocate D.R. Ravishankar appeared for the petitioner while AGA Hema Kumar and Senior CGSC Amit Anand Deshpande appeared for the respondents.

Facts of the Case -

The common issue for consideration in the writ petitions was whether the respondents had jurisdiction to levy Value Added Tax (VAT) under the provisions of the Karnataka Value Added Tax Act, 2005 (KVAT Act) on ATM Management Services provided by the petitioner to various Banks across the State of Karnataka on which the petitioner had already paid Service Tax as per the Finance Act 1994. The petitioner company was engaged in the provision of ATM Management Services for various banks at the pan-India level and undertook end-to-end services for the banks.

The petitioner had paid service tax on the entire value of the contractual consideration received from banks on account of rendering the aforesaid services and had also been regularly filing returns with the Service Tax Authorities. It was the grievance of the petitioner that the respondents had sought to levy VAT on the very same consideration bypassing the Impugned Assessment Orders and Demand Notices by ignoring the gamut of services provided by the petitioner and treating the transaction as a “financial lease” and therefore, holding the same to be transfer of right to use the ATM Machines and “deemed sale of goods” which was not only without jurisdiction or authority of law but also illegal, arbitrary and contrary to the material on record and deserve to be quashed.

The High Court in the above regard said, “The impugned orders have erroneously held the petitioners transaction to be one of deemed sale. A deemed sale or delivery on hire purchase would arise only when goods are either delivered physically or on the grant of effective control and possession therein to the recipient. In the present case, the transaction is a pure service transaction not entailing any transfer of property of goods or effective control of the goods to the recipient.”

The Court further observed that the various terms of the Agreements with the Banks disclose that the only intent of the contract is the only provision of ATM management service for which the petitioners deploys ATMs and other assets at various sites across India and that the petitioners use the ATMs and other assets merely as a means for providing ATM management services to banks.

“The aforesaid facts and circumstances are sufficient to come to the conclusion that the impugned orders, levies and demands are illegal, arbitrary and without jurisdiction or authority of law and the same deserve to be quashed”, held the Court.

Accordingly, the High Court allowed the petitions and quashed the re-assessment orders.

Cause Title- FIS Payment Solutions and Services India Private Limited v. The State of Karnataka & Ors.

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