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2005 (1) TMI 652 - KARNATAKA HIGH COURTSeeking clarification on the rate of tax applicable under the Act on sale of Automated Teller Machines (ATM) - levy of tax u/s 5(3)(a) of the Karnataka Sales Tax Act, 1957 ("Act,1957") - ATM’s would fall under entry No. 4 of Part "E" of the Second Schedule to the Act and the basic rate of tax on the sale of ATMs is at 12 per cent? - Whether ATMs can be considered as "computer terminals" ? - HELD THAT:- ATM is the acronym for Automated Teller Machine. This machine has a data terminal with two input and four output devices. The ATM connects to and communicates with a host processor that is analogous to an internet service provider. Then as a way of supporting the machine to the host processor, dial up or leased lines are used. With the dial up, the machine would dial into the host processor, using a standard telephone line and modem. With the leased line, the machine is connected through the host processor through what is called a four-wire, point to point, dedicated telephone line. The ATM does not have many parts. There is a card reader, which is what captures a person’s account information that is stored on the magnetic strip located on the back of the ATM/debit card. This information is actually used by the host processor in routing the transaction to the appropriate bank. Then it has a "key pad", which is used by the cardholder to tell the machine what type of transaction is needed. It has an "electric eye" that is used for cash dispensing mechanism. In addition to the eye, the ATM has a "sensor" that is capable of evaluating the thickness of each of the bills being dispensed. The Advance Ruling Authority (majority view) has classified ATMs as "terminals" falling under entry No. 20(ii)(b) of Part "C" of the Second Schedule to the Act, since ATM machine is also understood as computer terminal in the commercial world. This view of the Advance Ruling Authority was not strongly supported by the learned Senior Counsel, and a passing remark was made, that if it does not fall under entry No. 20(i) of Part "C" of the Second Schedule to the Act, it can be brought under "terminal" as envisaged under entry No. 20(ii)(b) of Part "C" of the Second Schedule to the Act. An Automatic Teller Machine, in our view, is an electronic device, which allows a bank's customers to make cash withdrawals, and check their account balances at any time without the need of human teller, probably that most widely used means of "electronic funds transfer". From the literature and the books on computers produced before us, we are of the view, that ATM is not a computer by itself and it is connected to a computer that performs the tasks requested by the person using ATMs. The computer is connected electronically to many ATMs that may be located from some distance from the computer. In common parlance, it is understood as electronic device and therefore, the revisional authority is justified in holding that ATMs are electronic goods and the levy of tax on the sale of ATMs requires to be made under entry No. 4 of Part "E" of the Second Schedule to the Act. Section 22-A(2) of the Karnataka Sales Tax Act, 1957, is amended with effect from April 1, 2002 and the amended provision authorises the Commissioner to invoke his suo motu revisional powers, when there is divergent opinion among the members of the Advance Ruling Authority, and if the majority opinion is erroneous and prejudicial to the interest of the Revenue. That is what that has been done by the Commissioner in the present case. Therefore, in our opinion, there is no jurisdictional error committed by the Commissioner of Commercial Taxes in invoking his powers u/s 22-A of the Act. In the result, appeal fails and accordingly, it is rejected. Thus, parties are directed to bear their own costs. Ordered accordingly. Appeal dismissed.
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