SERVICE TAX ON ATM SERVICES

CA SUDHIR HALAKHANDI , Last updated: 14 June 2016
Share

SERVICE TAX

1.ATM OPERATIONS, MAINTENANCE OR MANAGEMENT SERVICE

- CA SUDHIR HALAKHANDI

(THE ARTICLE WAS WHEN THE ATM SERIVCES WAS TAXED UNDER SERVICE TAX)

The Finance Act-2006 has brought ATM SERVICES into the net of service tax and the effective date of taxability declared by the Government is 1^st May 2006. When the Service tax was introduced by the Finance Minister on ATM services there was lot of confusion and apprehensions in the mind of service users about its nature and even the Hon. Finance minister have to explain the exact nature of the tax in his press conference to defuse the fear that it is a tax on the withdrawal of money from the ATM. Let us try to understand this tax with the help of some of the questions related to this service: -

1. What is ATM and how it is working?

REPLY: -

Section 65(9a) of the Finance Act-1994 (The law governing the tax on services in India) has provided the meaning of the ATM and this definition is given below: -

“Automated teller machine” means an interactive automatic machine designed to dispense cash, accept deposit of cash, transfer money between bank accounts and facilitate other financial transactions.

Here the ATM is a interactive automatic machine designed to: -

1. Dispenses cash

2. Deposit Cash

3. Transfer money between bank accounts

4. Facilitate other financial transactions.

2. Please give some Historical back ground of the ATM.

REPLY: -

As per the records available on Internet, the first ATM patent was filed in 1930 but Barclays Bank of UK installed the First actual ATM in 1967. Now the ATMs are available everywhere even in small cities in our own country.

3. What are is the latest developments on the front of ATM?

REPLY: -

In our country the development of ATM can be seen in the form of it’s availability in each and every city and on international front the developments are going on continuously on the ATM front and latest in this series is talking ATMs for blind person.

4. What are the specific characteristics of ATM and how they useful to the customers and banks?

REPLY: -

The first and foremost benefit of the ATM is that the customers have access to services 24 hours a day, seven days a week. During banking hours the ATM can reduce long lines inside the bank by providing an alternative to a human teller. Further, the ATM continues to be available long after the bank is closed. If you need cash in the evening, on a holiday or Sunday, the ATM is there to serve.

5. How the ATM works?

REPLY: -

To use an ATM, the customer feeds it a bankcard, sometimes called a debit card. This resembles a credit card but is issued from the bank to use with an ATM. Once the machine reads the magnetic strip on the card, it requests a personal identification number, or PIN. The PIN provides security in case the card is lost or falls into the wrong hands.

Upon entering the associated PIN correctly, the customer will see a list of choices on the ATM screen. Through touch-screen or buttons, the customer navigates through the ATM screens to complete the desired transaction. If the customer chooses to withdraw cash, the cash is dispersed through a feeder slot. If making a deposit, the customer feeds the deposit envelope into a deposit slot when cued by the machine. Receipts are optionally printed for the customer, but the ATM retains a record of all transactions. Tied into the bank's computer system, the ATM can automatically deduct withdrawals or add deposits to the customer's account(s).

6.How the ATM services are charged from the customers?

REPLY: -

Many banks do not charge a fee to customers for using their own ATMs. However, if you withdraw cash from an ATM that does not belong to your bank, you will likely incur transaction fees. ATMs normally have posted information about non-customer fees, though this will not include fees that your own bank might charge.

But now due to this newly introduced on ATM some of the banks have started charging yearly or half yearly charged from the ATM users.

7. What type of services is made taxable under this head?

REPLY: -

Section 65(105) (zzzk): - Taxable service means any service provided or to be provided to any person, by any other person, in relation to automated teller machine operations, maintenance or management service, in any manner.

Here the taxable service is: -

1.Service provided or to be provided;

2. To any person;

3.By any other person;

4.In relation to automated teller machine operations, maintenance or management service;

5. In any manner.

Here if we carefully read the above definition then it will be clear that the service tax has been imposed on operations, maintenance or management of the Automatic teller machine.

8. What is the meaning of Operations, maintenance and management of ATM?

REPLY: -

This particular term has been defined in Section 65(9b) of the Act and this as under: -

“Automated teller machine operations, maintenance or management service” means any service provided in relation to automated teller machines and includes site selection, contracting of location, acquisition, financing, installation, certification, connection, maintenance, transaction processing, cash forecasting, replenishment, reconciliation and value-added services.

Here we can summarize this service with respect to ATM as under: -

1. Site selection;

2. Contracting the location;

3. Acquisition;

4. Financing;

5. Installation;

6. Certification;

7. Connection;

8. Maintenance;

9. Transactions processing;

10. Cash forecasting;

11. Replenishment;

12. Reconciliation and

13. Value added services.

Here one should note that this is only illustrative list because the opening words of the definition are includes and not means hence each and every service which can be termed as operations, maintenance or management service will be taxable under this head.

9.What will be the date of applicability of service tax on this service?

REPLY: -

This service is recently introduced by finance Act-2006 along with 14 other services and all these services were declared to be taxable from the date to be notified after enactment of the Finance Act-2006.

The central Government through Notification No.15/2006-ST., dated 25-4-2006 has notified 1^st. May 2006 as the date on which the service tax is applicable on all these new 15 services.

10. What is the rate of tax applicable on this service?

REPLY: -

The rate of tax applicable is 12% plus education cess is 2% on service tax hence the total levy is 12.24%.

11. Who will be responsible for deposit of service tax under this service?

REPLY: -

Normally the service tax is payable by the service provider but in certain exceptions this tax is payable by persons other than service provider i.e. service receiver etc.

The fifteen services introduced this year there is only one exception of this rule that the service tax is to be paid by the service provider and this exception is “Sponsorship” services.

Hence like all other services, in this service also the responsibility of payment of tax is of the service provider.

12. Is their any exemption for this service available under the law?

REPLY: -

No specific exemptions have been provided for this service but all the general exemptions applicable to other services are also available to this service: -

EXEMPTION TO SMALL SERVICE TAX PROVIDER

The exemption scheme for small service provider as provided by Notification No. 6/2005 dated 1.3.2005 is also applicable for this service also and according to this exemption scheme if the Gross value of services provided in the immediately preceding year does not exceed Rs.4 Lakh then the service provider will be eligible for an exemption from service tax on first Rs. 4 Lakh collection in the current year.

If the service provider who otherwise eligible according to this Notification can claim benefit of this scheme. The one very important restriction in this respect is that the service provider should not use brand name or trade name, whether registered or not, of any other person while providing the services. If he is using the same then the benefit of this scheme will not be available to him.

There may be certain ATM Management etc. service providers who are using the brand or trade name of other persons or clubs then no benefit is available to such service providers as per the provisions this exemption scheme for small service providers.

Some more restriction such as non- availability of cenvat credit to such service providers is also another feature of this scheme, which should be kept in mind while taking benefit of this scheme.

OTHER GENERAL EXEMPTIOS

There are certain other general exemptions, which are available to all the service providers. Here we are giving the list of such exemption and if any one of them is applicable to the service provided with respect to ATM Operations, maintenance or Management service, the same can be claimed: -

1.Services rendered to the United Nations or an international organisation – Notification No.16/2002 ST, dated 2.8.2002

2.Services rendered to SEZ developer or an unit located in SEZ for development, operations and maintenance or setting up SEZ units- Notification No. 17/2002-ST, dated 21.11.2002 and Notification No. 4/2002-ST, dated 31.4.2004

13. What are the procedural requirements attached with this service?

REPLY: -

These are the general requirements as applicable to all the services but for the benefit of readers head these are summarized as under: -

(i). DEPOSIT OF TAX: -

In case of proprietorship and partnership firm tax has to be deposited quarterly and the date of deposit of service tax are as under: -

QTR ENDING ON	DUE DATE
30^TH JUNE	5^thJULY
30^TH SEPT.	5^TH OCT.
31^ST. DEC.	5^TH JAN.
31^ST.MARCH	31^ST. MARCH

In case of other Assesses: -

5^th Day of the immediately following the month to which tax is related say For April: - 5^th May, For May: - 5^th June etc. but the tax for the Month of March has to be deposited by 31^st. March itself.

(ii) RATE OF INTEREST: -

13% P.A. to be calculated on day basis.

(iii). FILLING OF RETURNS: -

Returns are required to filed half yearly and the dates of filling are as under: -

HALF YEAR	DUE DATE
30^th SEPT.	25^TH OCT.
31^st. MARCH	25^TH APRIL

(iv). RATE OF SERVICE TAX: -

12% Plus 2% Education cess hence total 12.24%

14. What will be the consequences if the tax is not deposited within time?

REPLY: -

Section 76 of the Finance Act-1994 has been replaced by a new section 76 and the penal provisions for late deposit of tax has been made much more stringent.

Now section 76 provides that the penalty will be imposed for this purpose will be an amount which shall not be less than Rs.200 per day or 2% per month of such tax which ever is higher.

The penalty payable under this section shall not be more than the amount of tax payable by the assessee.

This penalty is not a mandatory penalty because as per Section 80 if the assessee proves that there was reasonable cause for the failure.

15.What are the relevant codes applicable to this service?

REPLY: -

The relevant codes are as under: -