TaxTMI 
TaxTMI 
2023 (8) TMI 255
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....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 Respondent No. 6 from the Service Tax paid on the very same turnover; d) Such further ....
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.... 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" and therefore, holding the same to be transfer of right to use the ATM Machines and "deemed sale of goods" which is not only without jur....
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.... 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 no sale of the ATM machines by the Petitioner to the Banks. For constituting a deemed sale, the transaction should involve a transfer of right to use by the Petitioner to the Banks. (viii) T....
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....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 transfer of right to use could be split and consideration segregated to charge both the taxes separately; in the absence of machinery provision to spit the contract and determine value, the charge would fail and it would have to be....
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....- 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 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 downti....
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....s 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 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 transa....
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....ed 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 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 eve....
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.... 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 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....
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....ers' 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 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 levie....
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.... 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 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 a....
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....d 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 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 d....
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.... 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 the ratio 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....