ATM Management Services Provided to Banks Not Liable to VAT as No Sale or Transfer of Ownership or Possession involved, only Service Tax Applies: Karnataka HC [Read Order]

The High Court of Karnataka has held that the Automated Teller Machine (ATM) Management Services provided by service provider companies to the banks are not liable to Value Added Tax (VAT) as there is no sale, transfer of ownership or possession involved in such transactions.

The court emphasised that these services are purely service-oriented and should only be subject to Service Tax under the Finance Act, 1994.

The ruling came in response to two writ petitions filed by FIS Payment Solutions and Services India Private Limited through its Authorised Signatory Ravi Khandelwal under Article 226 of the Constitution of India against various government authorities, challenging the legality of the levies and demands imposed on them.

The petitioner was represented by D R Ravishankar, Pradeep Nayak, Naveen Gudikote and Kishore Kumar and the respondents were represented by Hema Kumar and Amit Anand Deshpande.

The bench noted that the agreements between the petitioner and the banks explicitly outlined the nature of the services provided. The petitioner offered ATM Management Services on a rent/lease basis for off-site ATMs.

It was also noted that the petitioner retained the ownership, possession and control of the ATMs and assets while assuming responsibility for their maintenance and operational efficiency.

The bench further emphasised that the dominant intent of the transaction was to provide services and there was no intention to transfer the ATM machines or equipment to the banks. The rights, risks and rewards related to the ATMs and equipment remained with the petitioner, who also took insurance for the same.

The bench observed that the subject transactions of ATM Management Services did not fall under the purview of VAT under the Karnataka Value Added Tax (KVAT) Act, 2005.

It was held that the State of Karnataka did not have the legislative competence to levy VAT on these transactions as it pertained only to the sale of goods.

The bench cited relevant judgments, including those of the Supreme Court and the Andhra Pradesh High Court and established that the transaction did not involve a transfer of right to use goods, which is a prerequisite for levying VAT and held that ATM Management Services were not liable for VAT.

In conclusion, the single bench of Justice S R Krishna Kumar allowed both writ petitions filed by the petitioner and quashed the re-assessment orders and demand notices issued by the respondent revenue authorities.

To Read the full text of the Order CLICK HERE

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