No VAT can be levied on ATM Management Service

While considering the issue as to whether Value Added Tax (VAT) can be levied on ATM Management Service provided by the Petitioner, which the Respondent-Revenue treated as ‘Financial Lease’ service and deemed sale of goods, the High Court of Karnataka observed that no VAT can be levied on ATM Management Service, more so considering that Service Tax under the Finance Act 1994 had already been deposited thereon, by the Petitioner, and that the Revenue had erroneously treated the transaction as one of deemed sale.

A Single Judge Bench of Justice S R Krishna Kumar observed that a deemed sale, or delivery on hire-purchase arises only when goods are delivered physically, or on grant of effective control and possession to the recipient.

In the present case, the Bench noted that the transaction was a pure service transaction not entailing any transfer of property or goods or effective control of the goods to the recipient. Considering the terms of the Agreements, the Bench noted that the only intent of the contract is only provision of ATM management service for which the petitioner’s deploys’ ATMs and other assets at various sites across India. The Bench observed that the Petitioner used ATM and other assets only as a means to provide ATM Management service.

The Petitioner-Assessee was represented by Advocate DR Ravishankar, whereas the Respondent-Revenue was represented by AGA Hema Kumar.

The Petitioner is engaged in the provision of ATM Management Services for various banks at pan India level and undertakes end to end services for the banks. The Petitioner paid Service Tax on the entire value of the contractual consideration received from banks for rendering said service.

The VAT Department sought to levy VAT duty on the consideration received by the Petitioner from the banks. The Department reasoned that the transaction was one of deemed sale of goods and would thus attract levy of VAT duty.

On hearing the contentions of both parties as well as the material on record, the Bench observed that it to be nowhere evident that the ATMs and equipment at any stage were transferred or delivered to the banks and neither did the possession get transferred to the banks. It was also noted that the Petitioners all throughout the tenure of the agreement continued to provide ATM Management Service.

The Bench further clarified that delivery or transfer is sine qua non to attract levy of VAT. However, no delivery but only deployment had taken place. The Petitioner not only had the possession but was retained effective control of the ATMs and equipment.

Therefore, the Bench concluded that the Department had incorrectly treated the transaction as deemed sale, and thus proceeded to set aside the assessment order levying VAT duty on ATM Management Service provided by the Petitioner.

Cause Title: FIS Payment Solutions and Services India Private Limited vs The State of Karnataka [W.P No. 9550 of 2020 / 2023-Enterslice-2-HC-Kar-VAT]

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