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2023 (8) TMI 255 - HC - VAT and Sales TaxLevy of VAT - ATM Management Services provided by the petitioner to various Banks across the State of Karnataka on which the petitioner has already paid Service Tax - Karnataka Value Added Tax Act, 2005 (KVAT Act) - HELD THAT - The impugned orders, levies and demands are illegal, arbitrary and without jurisdiction or authority of law and the same deserve to be quashed. 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 petitioners not only has the possession but is also in effective control of the ATMs and equipment. If it was neither in possession or in effective control over the ATMs and equipment, the petitioners would have been unable to provide the aforesaid services. 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 various terms of the Agreements with the Banks discloses that the only intent of the contract is only provision of ATM management service for which the petitioners deploys ATMs and other assets at various sites across India. The petitioners uses the ATMs and other assets merely as a means for providing ATM management services to banks. The levies and demands are illegal, arbitrary and without jurisdiction or authority of law and the same deserve to be quashed - petition allowed.
Issues Involved:
1. Jurisdiction to levy VAT on ATM Management Services. 2. Classification of the transaction as a financial lease or service. 3. Applicability of Service Tax and VAT on the same transaction. 4. Validity of the impugned orders and demands. Summary of Judgment: Issue 1: Jurisdiction to levy VAT on ATM Management Services The common issue for consideration was whether the respondents have jurisdiction to levy VAT under the Karnataka Value Added Tax Act, 2005 ("KVAT Act") on ATM Management Services provided by the petitioner to various Banks across Karnataka, on which the petitioner has already paid Service Tax as per the Finance Act 1994. The court held that the impugned orders, levies, and demands by the respondents are illegal, arbitrary, and without jurisdiction or authority of law and deserve to be quashed. Issue 2: Classification of the transaction as a financial lease or service The petitioner argued that the transaction between the Petitioner and Banks does not involve a financial lease. The payment of Service Tax by the Petitioner is not in dispute, but the VAT authorities ignored that payment by stating that such payment was incorrect and that the transaction is one involving a financial lease on which VAT ought to be paid. The court found that the dominant intention of the transaction is to provide services and not to transfer any property in the ATM Machines to the Banks. The petitioner retains the possession and control of the ATM machines. Issue 3: Applicability of Service Tax and VAT on the same transaction The court reiterated that Service Tax and VAT are mutually exclusive levies. If Service Tax is levied on the same consideration, VAT cannot be levied. The impugned orders erroneously held the transaction to be one of deemed sale. The court concluded that the transaction is a pure service transaction not entailing any transfer of property of goods or effective control of the goods to the recipient. Issue 4: Validity of the impugned orders and demands The court quashed the impugned orders and demands, stating that they are illegal, arbitrary, and without jurisdiction or authority of law. The court emphasized that the subject transactions of ATM Management Services are not liable to VAT under the KVAT Act and the State of Karnataka does not have the legislative competence to levy VAT on such transactions. Order: (i) Both petitions are allowed. (ii) In W.P. Nos. 26262-26263/2019: a. The Re-assessment order dated 30.04.2019, for the period 2013-14, is quashed. Consequently, the demand notice dated 30.04.2019 for the period 2013-14 is also quashed. b. The Re-assessment order dated 30.04.2019, for the period 2014-15, is quashed. Consequently, the demand notice dated 30.04.2019 for the period 2014-15 is also quashed. (iii) In W.P. No. 9550/2020: a. The Re-assessment order dated 16.06.2020, for the period 2015-16, is quashed. Consequently, the demand notice dated 16.06.2020 for the period 2015-16 is also quashed. b. The Re-assessment order dated 16.06.2020, for the period 2016-17, is quashed. Consequently, the demand notice dated 16.06.2020 for the period 2016-17 is also quashed.
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