TaxTMI 
TaxTMI 
2023 (8) TMI 255
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or Direction of like nature to declare the Impugned Order bearing CAS No. 386319489 dated: 16.06.2020 for the period FY 2015-16(Annexure-A) along with the consequential demand Notice dated: 16.06.2020 issued by Respondent No. 5 as illegal, arbitrary, wholly without jurisdiction and without the authority of law, thereby violating Article 14, 19(1) (g) and 265 of the Constitution of India and quashing the consequential Impugned Demand of Service Tax; b) Issue a writ in the nature of Certiorari or any other appropriate Writ, Order or Direction of like nature to declare the Impugned Order bearing CAS No. 329319520 dated for the period FY 2016-17(Annexure-B') along with the consequential demand Notice dated: 16.06.2020 issued by Respondent No. 5 as illegal, arbitrary, wholly without jurisdiction and without the authority of law, thereby violating Article 14, 19 (1) (g) and 265 of the Constitution of India and quashing the consequential Impugned Demand of Service Tax; c) Alternatively, Issue a Writ, of Mandamus or any other appropriate Writ, Order or Direction of like nature to direct the Respondent No. 5 to seek for adjustment of Service Tax liability from the Respond....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taka Value Added Tax Act, 2005 ("KVAT Act") KVAT Act on ATM Management Services provided by the petitioner to various Banks across the State of Karnataka on which the petitioner has already paid Service Tax as per the Finance Act 1994. 3. Petitioner is engaged in the provision of ATM Management Services for various banks at pan India level and undertake end to end services for the banks. Petitioner has paid Service Tax on the entire value of the contractual consideration received from banks on account of rendering of the aforesaid services and has also been regularly filing returns with the Service Tax Authorities. It is contended that petitioner render these ATM Management services to various banks across the Country whereby, end to end management of the ATM Machines is provided by the petitioner. The petitioner has duly discharged Service Tax on the entire revenue earned from such transaction. It is the grievance of the petitioner that the respondents have sought to levy VAT on the very same consideration by passing the Impugned Assessment Orders and Demand Notices by ignoring the gamut of services provided by the petitioner and treating the transaction as a "financial lease" ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sideration. (v) Composite contract involving both sale of goods and rendition of services cannot be split artificially to levy tax on separate components. The nature of the contract has to be determined by applying the dominant intention test as it is neither works contract or catering contracts. (vi) The impugned orders have erroneously held the transaction to be one of deemed sale. A deemed sale under would arise only when goods are either delivered physically or granted the effective control and possession 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 the recipient. The various terms of the agreements with the Banks discloses that the primary intent of the contract is only provision of ATM management service for which the Petitioner deploys ATMs and other assets at various sites across India. The Petitioner uses the ATMs and other assets merely as a means for providing ATM management services to banks. (vii) VAT can be charged on a transaction only where there is a 'sale' or a deemed sale of goods. There is no dispute that there is n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e artificially bifurcated to levy VAT; there does not exist any separate consideration, which is payable solely for the right to use ATMs and the entire contract is a composite indivisible contract for rendering a host of services; splitting of an indivisible contract is not permissible as splitting can only be done for specified contracts which involve a works contract; the intention of the parties to the composite contract is relevant in determining whether they intended separate rights arising out of the sale of goods; in case there is no such intention, there is no sale even if the contract could be disintegrated; the dominant nature test is relevant for arriving at the substance of the contract, if it was not a case of works contract or catering contract by way of constitutional fiat, splitting was made permissible; the bifurcation of the contract and revenue generated is only permissible in specified situations and where none of the said transaction has even been alleged in the impugned order, levy of VAT is completely without jurisdiction. (xii) In any case, KVAT Act does not contain any provision by which an indivisible contract of services and goods inviting trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aised are tabulated below: W.P. No. 26262 of 2019 W.P. No. 9550 of 2020 2013-14 2014-15 2015-16 2016-17 Impugned order Date 30.04.2019 30.04.2019 16.06.2020 16.06.2020 Tax 4,53,03,094/- 6,40,04,403/- 8,80,47,133/- 10,56,18,848 Interest 4,44,12,917/- 5,10,69,936/- 7,44,42,689/- 7,04,97,929 Penalty 45,30,309/- 64,00,440/- 88,04,714/- 1,05,61,885 Total 9,42,46,320/- 12,14,74,779/- 17,12,94,536 18,66,78,662 Grand Total 21,57,21,099/- 35,79,73,198/- 11. In my considered opinion, the impugned orders, levies and demands are illegal, arbitrary and without jurisdiction or authority of law and the same deserve to be quashed for the following reasons: (i) A perusal of the agreements entered into between the petitioners and the Banks would reveal the following salient features: ● The Petitioner takes the premises for ATM sites on rent/lease basis (in case of off-site ATMs) and pays 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommunication equipment, etc. in order to ensure that there is minimal downtime of the ATMs. ● The petitioner is responsible for replenishment of adequate cash to ensure that services provided to Bank's customers is not disrupted due to cash outage. ● While for onsite ATMs (i.e. ATMs at Banks site) the security is provided by Banks, the petitioner provides security arrangement for deployment made at offsite locations. ● The petitioner provides extract of electronic journals of all the transaction carried out at each ATM / CD to centralized server of the bank. ● The petitioner earns a fixed monthly amount from Banks. This amount is determined on the basis of estimated cost to be incurred for the management of site and adding a profit margin to the total cost; in case of downtime beyond agreed period, the banks deduct penalty from the monthly fixed payments. ● The petitioner earns revenue which is based on number of transactions undertaken by the users/ customer of Banks. (ii) The material on record discloses that the petitioner is a service provider of ATM Management Services for various Banks at pan ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Entry 54 of List II. Consequently, once a transaction is undisputedly held to be service, State does not have the legislative competence of jurisdiction to impose VAT on the same transaction. The jurisdiction for the State authorities would arise on there being a sale of goods. The extended definition of sale found in Article 366(29a) of the Constitution of India following the 46th Amendment and what is popularly called deemed sale can come into play, in the instant case, when the revenue authorities can prove that there is a "transfer of right to use the goods" and that possession and control over the goods is necessary to attract the taxable event. (v) In the case of 20th Century Finance Corpn. Ltd. v State of Maharashtra - AIR 2000 SC 2436, the Apex Court held as under:- "35. As a result of the aforesaid discussion our conclusions are these: (a) The States in exercise of power under entry 54 of List II read with article 366(29A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat is provided is service on hire. In the former case, there was effective control of the hirer (transferee) on the cab whereas in the latter case it is lacking. Whether there is a transfer of the right to use or not is a question of fact which has to be determined in each case having regard to the terms of the contract under which there is said to be a transfer of the right to use.... .... In the instant case, the petitioner-Rashtriya Ispat Nigam Limited owning Visakhapatnam Steel Project, for the purpose of the steel project allotted different works of the project to contractors. To facilitate the execution of work by the contractors with the use of sophisticated machinery, the petitioner has undertaken to supply the machinery to the contractors for the purpose of being used in the execution of the contracted works of the petitioner and received charges for the same. The respondents made provisional assessment levying tax on the hire charges under section 5-E of the Act.... ....In this writ petition, the petitioner prays for a declaration that the tax levied by the 1st respondent in purported exercise of power under section 5-E of the Act on the hire charges co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s providing ATMs and other ATM related activities do not fall under BOF as financial leasing including equipment leasing and transfer of information or data processing. In view of the decisions of the Hon'ble Apex Court and the Tribunals cited above, the impugned orders of the adjudicating authority is set aside and allow all the three appeals filed by the appellants with consequential relief if any." (ix) On a similar allegation as raised by the Karnataka VAT Authorities in the present case, the Madras High Court in petitioners' own case in India Switch Co. Pvt. Ltd. vs Deputy Commercial Tax Officer - 2021 (3) TMI 192 has held that the relevant activity of the petitioners amounts to rendering of service and is not one of deemed sale. The Madras High Court held as under: "23. In the facts and circumstances of the present case, the above test enunciated for "transfer of right to use" is not satisfied. Therefore, the petitioner cannot be subjected to tax under the provisions of the Tamil Nadu General Sales Tax Act, 1959 and/or under the provisions of the Central Sales Tax Act, 1956. In the transactions entered between the petitioner and the banks, the effective cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Dunkerley's case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test. 48. What are the "goods" in a sales transaction, therefore, remains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase. The Court would have to arrive at the conclusion as to what the parties had int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of Sasken Communication Technologies Ltd. vs. Joint Commissioner of Commercial Taxes (Appeals) - 3 Bangalore - 2012 (55) VST 89 (KAR) held as under:- "30. Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the Courts, however difficult it may be, to ascertain to what degree and to what extent, the authority can deal with matters falling within these classes of subjects exists in each Legislature and to define, in the particular case, before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result the two provisions must be read together, and the language of one interpreted, and where necessary modified by that of the other. From time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ature, as the State Legislature is competent to enact laws in respect of sale of goods. By introducing a schedule to the said enactment and describing under a works contract "programming and providing a computer software is specified'', unless the said works contract involves an element of sale of goods, the State Legislature has no power to levy tax under the said Act. Similarly, the Parliament also has no power to levy service tax on sale of goods if by including in the Finance Act, development of information technology software, study, analysis, design and programming, information technology software and various other aspects touching software if it involves sale of goods. It has to be necessarily confined to the service aspect. In both the enactments they specify the types of activities which are liable for tax. A duty is cast on the Court to interpret those provisions in such a harmonious way so as to uphold the right of both the legislations to levy tax which fall within their respective sphere." (xiv) In the case of CST vs. Quick Heal Technologies Ltd., - [2022] 141 Taxmann.com 146 (SC), the Apex Court held as under:- "55. The sum and substance of t....