SERVICE TAX ON ATM OPERATIONS, MAINTENANCE

[Dr. Sanjiv Agarwal]

 Service tax has been imposed on automated teller machine (ATM) services by the Finance Act, 2006 with effect from 1st May. 2006 (vide Notification No. 15/2006-ST, dated 25-4-2006). The gross amount charged by service provider to a person in relation to automated teller machine (ATM) services – operations, maintenance or management is chargeable to service tax.

Meaning of Automated Teller Machine

Section 65(9a) defines ‘automated teller machine’ as under –

“automated teller machine” means an interactive automatic machine designed to dispense cash, accept deposit of cash, transfer money between bank accounts and facilitate other financial transactions.

Automated teller machine (ATM) has been defined to mean an interactive automatic machine designed to dispense cash, accept deposit of cash, transfer money between bank accounts and facilitate other financial transactions.

The definition implies the following features of ATM—

— ATM is an automatic machine

— It is an interactive machine (programmed interaction is allowed between ATM and user)

— ATM is designed to —

• dispense cash

• accept cash deposit

• transfer money between bank accounts

• facilitate other financial transactions.

Transfer of money can take place between accounts of same bank or within same city or among bank accounts of different banks in different cities or even countries. Other financial transactions could be printing of bank statement, instructions giving and execution, balance enquiry etc.

Meaning of Automated Teller Machine Operations, Maintenance or Management Service

Section 65(9b) defines ‘automated teller machine operations, maintenance or management service’ as under —

“automated teller machine operations, maintenance or management service” means any service provided in relation to automated teller machines and includes site selection, contracting of location, acquisition, financing, installation, certification, connection, maintenance, transaction processing, cash forecasting, replenishment, reconciliation and value-added services.

As the nomenclature suggests, this means and covers three broad services provided in relation to ATMs- operation, maintenance and management.

The definition has two parts, viz,

(a) any service in relation to ATMs, and

(b) inclusive part comprising of site relation, contracting for location etc.

while first part is very vide in its scope, second part restricts the services to only those ones listed in the inclusive part of the definition.

ATMs (Automated Teller Machines) may be owned by banks and other financial institutions who outsource a number of activities related to ATMs such as operations, maintenance or management of hardware and software, cash replenishment etc. In other cases, there is comprehensive outsourcing of entire ATM related services. Such outsourced services are taxable under this category. Some of the specific areas of outsourcing are mentioned in the definition of ATM operations, maintenance or management.

These services are as follows —

— site selection

— contracting of location

— acquisition

— financing

— installation

— certification

— connection

— maintenance

— transaction processing

— cash forecasting

— replenishment of cash

— reconciliation and

— value added services

rendered in connection with ATMs.

In India Switch Company Pvt. Ltd. v. Commissioner of Service Tax 2006 -TMI - 95012 - CESTAT, CHENNAI where ATMs were leased to banks and electronic connectivity provided for their operations against fixed monthly facility charges but ownership remaining with appellants, it was held that the activity prima facie amounted to financial leasing service liable to service tax under banking and other financial services.

Taxable Service

Taxable service has been defined in Section 65(105)(zzzk) as under —

“any service provided or to be provided to any person, by any person in relation to automated teller machine operations, maintenance or management service, in any manner”.

Following are the basic features for a taxable service under ATM operations, maintenance or management service –

(i) ATM related service can be provided by any person to any other person

(ii) Service provided should be in relation to operations, maintenance or management of ATMs

(iii) Such service can be provided in any manner.

ATMs are owned by banks or other financial institutions who outsource certain ATM related services to other agencies.

Taxable service means services provided to any person by any other person in relation to automated teller machine operations, maintenance or management services, in any manner. Such services could be operations, maintenance or management of hardware and software, cash replenishment, installation, certification, site selection, cash forecasting, transaction processing, reconciliation or other value added services. It will also cover comprehensive outsourcing of entire ATM related services. All such services are taxable services. Withdrawal of cash from ATM by a customer is a facility and not a taxable service.

CBEC has clarified that service tax, under the ATM service, is not leviable for use of ATM by the card holders. Service tax on the proposed taxable service is leviable only if the services provided are in relation to operations, maintenance or management of ATM and are outsourced by banks to third parties. Third parties who provide services to banks in relation to ATM operation, maintenance or management are covered under the category of the proposed service. When ATMs are operated, maintained or managed by banks on their own, service tax liability does not arise.  It is, therefore, clarified that the proposed service under section 65(105)(zzk) of the Finance Act, 1994 will not result into any additional service tax liability on the users of ATMs. There is no service tax on users of ATM because of this services. However, if ATM space is used for the purpose of advertisement for a consideration, it may be a taxable service as sale of space or time of advertisement.

In NCR Corporation (India) Pvt Ltd v. CST, Bangalore 2008 -TMI - 30036 - CESTAT BANGALORE it was held that service tax is imposable on ATM operations, maintenance or management w.e.f. 1.5.2006 and that cash replenishment is included in ATM services.

In Diebold systems Pvt Ltd. v. CST 2007 -TMI - 3505 - CESTAT, CHENNAI, where a turnkey project was undertaken by supplier for sale of ATM and works contract for supply of and commissioning of ATM’s in a bank, it was held that such activates would be covered under works contract for supply, erection and commissioning of ATMs w.e.f. 1.6.2007.

Person Liable

Any person providing taxable service to any other person in relation to operation, maintenance or management of ATMs. Generally banks avail the services of outsourced agencies for such services and the agency or the person undertaking such service will be liable to pay service tax.

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