TaxTMI 
TaxTMI 
2026 (8) TMI 323
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.... 2006-07, 2007-08, 2008-09 and 2009-10. 2. The petitioner/Bank is the Assessee and the respondents are the Revenue. 3. For sake of convenience the petitioner herein is referred to as Bank and the respondents herein are referred to as Revenue. 4. The brief facts of the case are that:- The petitioner, M/s. Axis Bank Limited, is a scheduled commercial bank carrying on banking and financial activities under the provisions of the Banking Regulation Act, 1949. Apart from its banking activities, the petitioner is also a registered dealer under the provisions of the KVAT Act and the Central Sales Tax Act, 1956 (for short, "the CST Act"). The petitioner obtained registration under the KVAT Act and CST Act on 20.06.2006. 5. As part of its banking operations, the petitioner provides payment processing services to various Merchant Establishments (for short, "MEs"), enabling acceptance of payments through credit cards, debit cards and other electronic payment instruments. For such purpose, the petitioner enters into Merchant Establishment Agreements with the concerned establishments. 6. Under the said arrangements, Electronic Data Capture Terminals (for short, "EDCTs"), ....
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....mercial Taxes (Appeals)1, Bengaluru. The First Appellate Authority, by common order dated 30.11.2015, dismissed the appeals and affirmed the reassessment orders. 13. The petitioner thereafter preferred STA Nos.386 to 388 of 2016 and STA No.93 of 2016 before the Karnataka Appellate Tribunal ('the Tribunal' for short). The Tribunal, by common order dated 12.12.2017, dismissed the appeals and affirmed the findings recorded by the authorities below. 14. Being aggrieved by the said order, the present revision petition is filed before this Court under Section 65 of the KVAT Act. 15. This Court, while admitting the revision petitions, framed the following substantial questions of law: (i) Whether on the facts, in the circumstances and on the contentions raised, the Tribunal was right in upholding the orders passed by the Assessing Officer and the First Appellate Authority to the extent questioned herein? (ii) Whether, in the facts and circumstances of the case, the Tribunal was right in rejecting the claim of the petitioner that the charges received from the Merchant Establishments in respect of use of EDCTs or swiping machines are only service charges and are n....
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.... Income Tax, Mumbai reported in (2007) 3 SCC 481; * Lakshmi Audio Visual Inc., and another v. Assistant Commissioner of Commercial Taxes and another reported in 2001 SCC OnLine Kar 789; * M/s Rashtriya Ispat Nigam Ltd., owing Visakhapatnam steel project, Visakhapatnam v. The Commercial Tax Officer, Company Circle, Visakhapatnam and another reported in 1989 SCC OnLine AP 413; * Nayana Premji Savala v. Union of India reported in 2022 (66) G.S.T.L 417 (Bom.); * K.P.Mozika v. Oil and Natural Gas Corporation Ltd. reported in (2024) 14 Centax 154 (S.C.) 21. By relying on the above decisions, learned Senior counsel contended that the transaction remains one of service and not deemed sale. Submissions on behalf of the Revenue 22. Per contra, learned Additional Government Advocate appearing for the Revenue supported the orders passed by the authorities below and submitted that the EDCT machines are identifiable goods installed at the premises of the merchant establishments and separate rental charges are collected for the use of such machines. 23. It is contended that the merchant establishments have physical custody and operational use of the....
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.... H. AS TO THE CONTENTION THAT SERVICE TAX & VAT ARE MUTUALLY EXCLUSIVE: (1) The vehement submission of the Assessees that they have paid service tax as Cable Operator Services u/s.65(105)(zs) of the Finance Act, 1994 and therefore the same charges cannot be subjected to VAT under 2003 Act, appears attractive at the first blush. However, a deeper examination shows its fallacy: A transaction may involve a composite arrangement comprising of service & sale. In such an instance, there may be transfer of a right to use goods as in the case of a telephone connection, which would also include service. It is competent for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such a sale. True it is, that in IMAGIC CREATIVE PRIVATE LIMITED vs. COMMISSIONER OF COMMERCIAL TAXES has said that the payment of service tax and remittance of VAT are mutually exclusive, the nature of levies being different. However, different aspects of a single transaction can be taxed under different statutes. 26. Heard learned Senior Counsel appearing for the petitioner and learned AGA for the respondents. 27. We have given our an....
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...., it shall, after giving both the parties to the petition a reasonable opportunity of being heard, determine the question or questions of law raised and either reverse, affirm or amend the order against which the petition was preferred or remit the matter to the Appellate Tribunal with the opinion of the High Court on the question or questions of law raised or pass such other order in relation to the matter as the High Court thinks fit. (b) Where the High Court remits the matter to the Appellate Tribunal under clause (a) with its opinion on questions of law raised, the latter shall amend the order passed by it in conformity with such opinion. (7) Before passing an order under sub-section (6) the High Court may, if it considers necessary so to do remit the petition to the Appellate Tribunal and direct it to return the petition with its finding on any specific question or issue. (8) Notwithstanding that a petition has been preferred under sub-section (1), the tax shall be paid in accordance with the assessment made in the case. (9) If as a result of the petition, any change becomes necessary in such assessment, the High Court may authorize the pres....
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....e transfer of certain rights in goods. Clause (d) of Article 366(29A) includes within the expression "tax on the sale or purchase of goods" a tax on the transfer of the right to use any goods for any purpose, whether for a specified period or otherwise, for cash, deferred payment or other valuable consideration. Thus, the said provision creates a legal fiction by treating transfer of the right to use goods as a sale, notwithstanding that ownership in the goods continues to remain with the owner. 32. The Constitution Bench of the Apex Court in BSNL's case supra has explained the principles governing transfer of the right to use goods. The nature of the transaction, the contractual terms, the rights conferred upon the user and the manner in which the goods are placed at the disposal of the user are relevant factors for determining whether there has been a transfer of the right to use goods. 33. The Apex Court in BSNL's case supra, further explained the principles governing transfer of the right to use goods under Article 366(29A)(d) of the Constitution of India. The determination of whether a transaction amounts to transfer of the right to use goods depends upon the nature of t....
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.... the merchant from altering, modifying, reverse-engineering, or tampering with the software programming, moving or relocating the hardware from its registered commercial counter without prior written consent, or assigning, subleasing, or permitting any third-party interaction with the hardware, while dictating that all equipment remains the property of the bank and must be immediately surrendered on demand. 39. We are unable to accept the submission that such clauses negate transfer of the right to use goods. Clauses of such nature are normally incorporated in commercial arrangements to safeguard the ownership interest of the supplier and ensure proper maintenance and functioning of the equipment. The existence of such restrictions does not mean that the user has not been conferred the right to use the equipment during the subsistence of the agreement. 40. The relevant factor is whether the merchant establishment was enabled to use the identified equipment for its business purposes. In the present case, the answer is clearly in the affirmative. The machines remained installed at the merchant premises and were available for use by the merchant establishment for processing cust....
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.... to the case on hand, it is not in dispute that the petitioner has retained ownership of the EDCT machines. However, the material on record indicates that the said machines were installed at the premises of the merchant establishments and were made available to them for use during the subsistence of the agreement. The relevant consideration is not merely as to who continued to hold the title over the equipment, but whether the merchant establishments were conferred a right to use the said machines for the purpose for which they were provided. 45. Therefore, the mere fact that the petitioner retained ownership over the EDCT machines or continued to have certain obligations relating to maintenance and service of the equipment cannot, by itself, lead to the conclusion that there was no transfer of the right to use goods. The nature of the rights granted to the merchant establishments under the agreement and the extent of control exercised by them over the use of the machines have to be considered for determining whether the transaction falls within the ambit of Section 2(29)(d) of the KVAT Act. 46. The petitioner/Bank has also urged contention that the Bank has discharged servic....
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....e the power of the State to levy VAT on the sale element, if a transfer of the right to use goods is established. 48. The Apex Court in Imagic Creative (P) Ltd's case supra has recognised that service tax and VAT operate in different fields. The said principle does not support the proposition that once service tax is paid, VAT can never be levied, irrespective of the nature of the transaction. 49. In the present case, the authorities below have not treated the entire banking service as taxable under the KVAT Act. The finding recorded is that the rental charges collected in respect of the EDCT machines represent consideration for transfer of the right to use goods. Therefore, the contention based on payment of service tax does not assist the petitioner. 50. Learned Senior Counsel appearing for the petitioner has relied upon the judgment of the Apex Court in Idea Mobile Communication Ltd's case supra to contend that the EDCT machines are only incidental to the service rendered and cannot be treated as a separate subject matter liable to tax as deemed sale. 51. In the said case, the Apex Court was considering the nature of transaction relating to SIM cards supplied by cell....
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....facts and circumstances involved therein, does not advance the case of the petitioner. The determination as to whether there is a transfer of the right to use goods depends upon the nature of the goods involved, the contractual arrangement between the parties and the rights conferred upon the user. In the present case, the EDCT machines are identifiable and tangible goods installed at the premises of merchant establishments and are made available to them for use during the subsistence of the agreement. Therefore, the said decision does not assist the petitioner. 55. Reliance has also been placed upon by the learned Senior counsel for the petitioner in Indus Towers Ltd's case supra. The said decision was rendered in the context of telecom infrastructure where the question was whether providing access to passive infrastructure amounted to transfer of the right to use goods. This Court, on the facts therein, found that the infrastructure continued to remain under the control of the service provider and the customer was only provided access to the facility. 56. The said decision is also distinguishable on facts. In the present case, the subject matter is not mere access to an inf....
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.... are shown to be perverse, contrary to the statutory provisions or based on no evidence. 62. On examination of the material available on record, we are of the considered view that the findings recorded by the authorities below are based upon the contractual terms, the nature of the equipment supplied and the manner in which the EDCT machines were made available to the merchant establishments. No error of law warranting interference under Section 65 of the KVAT Act is made out. 63. Upon consideration of the statutory provisions, the material available on record and the submissions advanced by the learned counsel appearing for the parties, we are of the considered opinion that the Tribunal has correctly appreciated the nature of the transaction and applied the principles governing transfer of the right to use goods. 64. The EDCT machines are identifiable goods installed at the premises of merchant establishments. The merchant establishments were enabled to use such equipment for their business purposes during the subsistence of the agreement. The retention of ownership and supervisory rights by the petitioner does not negate the transfer of the right to use such goods. 65....