2005 (1) TMI 652 - HC - VAT and Sales Tax

Seeking clarification on the rate of tax applicable under the Act on sale of Automated Teller Machines (ATM) - levy of tax u/s 5(3)(a) of the Karnataka Sales Tax Act, 1957 ( Act,1957 ) - ATM s would fall under entry No. 4 of Part E of the Second Schedule to the Act and the basic rate of tax on the sale of ATMs is at 12 per cent? - Whether ATMs can be considered as computer terminals or electronic goods ? - HELD THAT - ATM is the acronym for Automated Teller Machine. This machine has a data terminal with two input and four output devices. The ATM connects to and communicates with a host processor that is analogous to an internet service provider. Then as a way of supporting the machine to the host processor, dial up or leased lines are used. With the dial up, the machine would dial into the host processor, using a standard telephone line and modem. With the leased line, the machine is connected through the host processor through what is called a four-wire, point to point, dedicated telephone line. The ATM does not have many parts. There is a card reader, which is what captures a person s account information that is stored on the magnetic strip located on the back of the ATM/debit card. This information is actually used by the host processor in routing the transaction to the appropriate bank. Then it has a key pad , which is used by the cardholder to tell the machine what type of transaction is needed. It has an electric eye that is used for cash dispensing mechanism. In addition to the eye, the ATM has a sensor that is capable of evaluating the thickness of each of the bills being dispensed. The Advance Ruling Authority (majority view) has classified ATMs as terminals falling under entry No. 20(ii)(b) of Part C of the Second Schedule to the Act, since ATM machine is also understood as computer terminal in the commercial world. This view of the Advance Ruling Authority was not strongly supported by the learned Senior Counsel, and a passing remark was made, that if it does not fall under entry No. 20(i) of Part C of the Second Schedule to the Act, it can be brought under terminal as envisaged under entry No. 20(ii)(b) of Part C of the Second Schedule to the Act. An Automatic Teller Machine, in our view, is an electronic device, which allows a bank's customers to make cash withdrawals, and check their account balances at any time without the need of human teller, probably that most widely used means of electronic funds transfer . From the literature and the books on computers produced before us, we are of the view, that ATM is not a computer by itself and it is connected to a computer that performs the tasks requested by the person using ATMs. The computer is connected electronically to many ATMs that may be located from some distance from the computer. In common parlance, it is understood as electronic device and therefore, the revisional authority is justified in holding that ATMs are electronic goods and the levy of tax on the sale of ATMs requires to be made under entry No. 4 of Part E of the Second Schedule to the Act. Section 22-A(2) of the Karnataka Sales Tax Act, 1957, is amended with effect from April 1, 2002 and the amended provision authorises the Commissioner to invoke his suo motu revisional powers, when there is divergent opinion among the members of the Advance Ruling Authority, and if the majority opinion is erroneous and prejudicial to the interest of the Revenue. That is what that has been done by the Commissioner in the present case. Therefore, in our opinion, there is no jurisdictional error committed by the Commissioner of Commercial Taxes in invoking his powers u/s 22-A of the Act. In the result, appeal fails and accordingly, it is rejected. Thus, parties are directed to bear their own costs. Ordered accordingly. Appeal dismissed.

Summary

Issues Involved:
1. Authority of Commissioner of Commercial Taxes u/s 22-A(2) of the Act.
2. Classification of Automated Teller Machines (ATMs) for tax purposes under the Karnataka Sales Tax Act, 1957.

Summary:

Issue 1: Authority of Commissioner of Commercial Taxes u/s 22-A(2) of the Act

The appellant did not press for an answer on this issue due to amendments in the provisions of section 4 of the Act and corresponding amendments to the Rules. Consequently, the court did not consider this issue further.

Issue 2: Classification of Automated Teller Machines (ATMs)

The appellant, a public limited company engaged in the manufacture and supply of ATMs, sought clarification on the applicable tax rate under the Karnataka Sales Tax Act, 1957. The Advance Ruling Authority (majority view) classified ATMs as "computer terminals" under entry No. 20(ii)(b) of Part "C" of the Second Schedule to the Act, attracting a tax rate of 4%. However, the Chairman of the Authority dissented, classifying ATMs as "electronic goods" under entry No. 4 of Part "E" of the Second Schedule, attracting a tax rate of 12%.

The Commissioner of Commercial Taxes initiated suo motu revisional proceedings u/s 22-A(1) of the Act, contending that the classification of ATMs as "computer terminals" was erroneous and prejudicial to the interest of the Revenue. The Commissioner confirmed that ATMs should be classified as "electronic goods" under entry No. 4 of Part "E" of the Second Schedule, thereby attracting a 12% tax rate.

The court examined the definitions and common parlance understanding of ATMs and "computer terminals." It concluded that ATMs are not computers by themselves but are electronic devices connected to computers. The court emphasized that in fiscal statutes, terms should be construed as understood in common parlance. The court upheld the Commissioner's classification of ATMs as "electronic goods," stating that ATMs are commonly understood as electronic devices used for functions like cash withdrawals and balance checks.

The court also noted that the Commissioner acted within his jurisdiction u/s 22-A of the Act, as the majority opinion of the Advance Ruling Authority was erroneous and prejudicial to the Revenue's interest. The appeal was dismissed, and each party was directed to bear their own costs.

Conclusion:

The court upheld the Commissioner's classification of ATMs as "electronic goods" under entry No. 4 of Part "E" of the Second Schedule to the Karnataka Sales Tax Act, 1957, attracting a tax rate of 12%, and dismissed the appeal.