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TMI Blog2023 (8) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a writ in the nature of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records pertaining to the Petitioners case and after going into the validity and legality thereof to quash and set aside two Orders No. DCCT(A)- 5.6/DGSTO-5/2019-20 both dated: 30.04.2019 passed by the Deputy Commissioner of Commercial Taxes, (Audit-5.6) along with the Notice of Demand, for the period April 2013 to March 2014 and April 2014 to March 2015, vide Annexure-A and B ( the Respondent No. 5); (ii) that this Hon ble Court be pleased to issue a Writ of Mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India, directing the Respondents to forthwith: (a) Refrain from taking any steps or proceedings in pursuance or in furtherance of the two Orders No. DCCT(A)- 5.6/DGSTO-5/2019-20 both dated: 30.04.2019 passed by the Deputy Commissioner of Commercial Taxes, (Audit-5.6) Respondent No. 5) for the period April 2013 to March 2014 and the period April 2014 to March 2015 and two Notice of Demand both dated: 30.04.2019; (b) withdraw and /or cancel the impugned orders and Notice of Dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners have also filed their rejoinder/reply. 5. Heard learned Senior counsel for the petitioner and learned AGA and learned CGSC for respondents and perused the material on record. 6. In addition to reiterating the various contentions urged in the petitions and referring to the material on record, learned Senior counsel for the petitioner has made the following submissions:- (i) 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 have ignored that payment by stating that such payment was incorrect and that the transaction is one involving financial lease on which VAT ought to be paid. (ii) Under the Agreements with the Banks, the Petitioner provides end to end services to provide ATM related services to Banks. The Petitioner is responsible for the successful operation of the ATM transactions by the Bank s customers and therefore, is responsible for deploying its own ATM machines, their installation, operation and maintenance, insurance etc. The dominant intention of the transaction is undoubtedly to provide services and not to transfer any proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset to the transferee. The transferee should have liberty to use the asset in any way that it wants. If the transferor retains effective control of the asset which can only be used for fulfilling the contract of the transferor, the transferor retains effective control of the asset and no VAT can be charged. In such a situation, only Service tax is chargeable since exclusivity and transfer of effective possession and control of goods is essential for a transaction to constitute a transfer of right to use goods. (ix) The respondents have also failed to consider and appreciate that in order to constitute a transfer, there must be goods available for delivery; there must be a consensus ad idem as to the identity of the goods; the transferee should have a legal right to use the goods consequently, all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; for the period during which the transferee has such legal right it has to be to the exclusion to the transferor which is the necessary concomitant of the plain language of the statute viz. a transfer of the right to use and not merely a license to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery to compute an integrated code and if there is no machinery to compute a tax, it has to be inferred that such transactions were not intended to be taxed by the substantive provisions. The dominant nature of the Agreements of the Petitioner with the Banks is service and hence only Service Tax is liable to be paid which has been done by the Petitioner in the present case. 7. It is therefore contended that the impugned levies and demands by the respondents deserve to be quashed. 8. Per contra, learned AGA and learned CGSC for the respondents submit that the sale of goods is effected after incorporating the same into a structure and when connected to bank network; it is only on the basis of successful integration certificate i.e. acceptance by the bank that the petitioner s payment terms comes into play; the property of ATM infrastructure is passed on to the bank immediately after successful integration and certification by the bank appointed person; if there is termination of services of the petitioner, it cannot recover back the goods but is entitled to the price of the goods based on agreed price; when there are goods, acceptance of goods, consideration for the said goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays rent/ lease rentals; the possession of the ATMs and other assets is with the petitioner and not Banks; as the petitioner retains the possession of the ATM machines, the control is also with the Petitioner who uses these machines to provide services to the Banks. ● Ownership as well as risks pertaining to the ATMs always lies with petitioner. ● Petitioner is responsible to maintain operational efficiency of the ATMs and other assets. In case of downtime beyond tolerable limit, petitioner is liable to pay penalty. ● Petitioner provides bank guarantee which can be redeemed by banks in case of non-performance. The banks can also terminate the contract in case of non-performance. ● Security of the ATM machine along with that of the cash is of the petitioner. Petitioner takes insurance for both the ATM Machine as well as the cash to be loaded on the same. ● The petitioner assists Banks to identify the optimal location for deployment of ATMs and assist the Banks in entire set up of the site, which includes renovation or preparation of site, installation of ATMs, air conditioner, VSAT, signage, electricity connection, networking ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord discloses that the petitioner is a service provider of ATM Management Services for various Banks at pan India level and undertakes end-to-end services for the banks in this regard and has been discharging Service Tax on the consideration received from banks on account of rendering the aforesaid services. Under the Agreements entered into with the Banks, the petitioner provides end-to-end services to provide ATM related services to Banks. The petitioner is responsible for the successful operation of the ATM transactions by the Bank s customers and therefore, is responsible for deploying its own ATM machines, their installation, operation and maintenance, insurance etc. The dominant intention of the transaction is undoubtedly to provide services and the ATM machines and other equipment never stood transferred to the Banks. The risk and reward with respect to the ATM and equipment is with the petitioner. The ATMs and equipment and even the cash handled by the petitioner in the course of its activities are insured by the petitioner. Rental agreements with landlords are also entered by the petitioner. (iii) As is clear from the agreements, the arrangement with the banks is a pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export. (b) The appropriate Legislature by creating legal fiction can fix situs of sale. In the absence of any such legal fiction the situs of sale in case of the transaction of transfer or right to use any goods would be the place where the property in goods passes, i.e., where the written agreement transferring the right to use is executed. (c) Where the goods are available for the transfer of right to use the taxable event on the transfer of right to use goods is on the transfer which results in right to use and the situs of sale would be the place where the contract is executed and not where the goods are located for use. (d) In cases where goods are not in existence or where there is an oral or implied transfer of the right to use goods, such transactions may be effected by the delivery of the goods. In such cases the taxable event would be on the delivery of goods. The transaction of transfer of right to use goods cannot be termed as contract of bailment as it is a deemed sale within the meaning of legal fiction engrafted in clause (29A)(d) of articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower under section 5-E of the Act on the hire charges collected during the period 1988-89, is illegal and unconstitutional. In our view, whether the transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction. From a close reading of all the clauses in the agreement, it appears to us that the contractor is entitled to make use of the machinery for purposes of execution of the work of the petitioner and there is no transfer of right to use as such in favour of the contractor. We have reached this conclusion because the effective control of the machinery even while the machinery is in the use of the contractor is that of the petitioner-company. The contractor is not free to make use of the same for other works or move it out during the period the machinery is in his use. The condition that he will be responsible for the custody of the machinery while the machinery is on the site does not militate against the petitioners' possession and control of the machinery. For these reasons, we are of the opinion that the transaction doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner and the banks, the effective control over to ATM's continued to vest with the petitioner. Since the issue stands fully covered in favour of the petitioner in the above cited decision of the Hon'ble Supreme Court in Bharat Sanchar Nigam Ltd. and another Vs. Union of India and Other (2006) 3 SCC 1 ; 2006 (2) STR 2, these writ petitions deserve to be allowed by quashing the impugned orders. 24. As a matter of fact, the subject transaction may have been liable to tax under Section 65(105)(zzzzj)of the Finance Act, 1994 with effect from 2008 after service tax was levied on Supply of Tangible Goods as about test for transfer of right to use is conspicuously absent. 25. Therefore, the impugned orders seeking to tax the petitioner under the provision of the Tamil Nadu General Sales Tax Act, 1959 and under the provisions of the Central Sales Tax Act, 1956 are quashed with consequential relief to the petitioner. (x) In the case of BSNL vs. Union of India - (2006) 3 SCC 1, the Apex Court held as under: 42. Of all the different kinds of composite transactions the drafters of the 46th Amendment chose three specific situations, a works contract, a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or purchase. In arriving at a conclusion the Court would have to approach the matter from the point of view of a reasonable person of average intelligence. (xi) So also, in Imagic Creative Pvt Ltd. vs. The Commissioner of Commercial Taxes - (2008) 9 S.T.R. 337 (S.C.), the Apex Court held as under: 28. Payments of service tax as also the VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract; irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct. (xii) In the case of CCE vs. Larsen Toubro - 2015 (39) S.T.R. 913 (S.C.), the Apex Court held as under: 16. At this stage, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the Legislature enacting them may appear to have legislated in a forbidden sphere. In such circumstances the true nature and character is to be ascertained for the purpose of determining whether it is legislation with respect to matters in this list or in that list. It is popularly known as 'pith and substance'. The law 'with respect to, a subject might incidentally 'affect' another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. The true nature and character of the legislation must be determined with reference to a question of the power of the Legislature. The consequences and effect of the legislation are not the same thing as the legislative subject-matter. What matters is the nature and character of the legislation and not its ultimate economic results that matters. 31. Therefore, if computer programming and providing of computer software involves two aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case of BSNL (supra) as discernible is that the contract cannot be vivisected or split into two. Once a lumpsum has been charged for the sale of CD (as in the case on hand) and sale tax has been paid thereon, the revenue thereafter cannot levy service tax on the entire sale consideration once again on the ground that the updates are being provided. We are of the view that the artificial segregation of the transaction, as in the case on hand, into two parts is not tenable in law. It is, in substance, one transaction of sale of software and once it is accepted that the software put in the CD is goods , then there cannot be any separate service element in the transaction. We are saying so because even otherwise the user is put in possession and full control of the software. It amounts to deemed sale which would not attract service tax. (xv) As stated supra, 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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