March 27, 2018

The revenue department’s intelligence unit has launched an investigation into alleged collusion between select banks and ATM service providers to avoid payment of value added tax (VAT) and wrongful claim of tax credit.

The Directorate General of Goods and Services Tax Intelligence (DGGSTI) shot off letters to State Bank of India, Punjab National Bank, Canara Bank, Syndicate Bank and some of their ATM service providers such as NCR, AGS Transact, Tata Payments Solutions, Hitachi on the issue.

ET has seen a copy of a letter issued by DGGSTI’s Kochi office to an ATM service provider on March 12. “In connection to the investigations into alleged irregularities in availment of cenvat credit pertaining to ATM transactions by certain banks, please provide details in respect of Syndicate Bank, Canara Bank, Punjab National Bank and State Bank of India and erstwhile associate banks of State Bank of India,” the letter said.

Three Kinds of Information
The department has sought three kinds of information. Details of different type of services provided to banks, along with invoices and service tax paid on each service, copies of agreement/contract/work order or any other document governing terms and conditions of outsourcing of ATMs and annual reports of financial years between 2013-14 and 2016-17. Similar information has also been sought from banks with most submitting the information in February itself.

State Bank of India in a response said that queries from DGGSTI did not tantamount to irregularities on its part. “The Bank has taken eligible Cenvat credit of indirect taxes paid to ATM service providers and there is no irregularity in indirect tax payments and Cenvat credit availed by us on service tax paid to ATM service provider. DGGSTI, in normal course, initiates enquiries on various issues from time to time. Bank fully co-operates DGGSTI by providing the necessary information/document required by them. Such enquiry does not necessarily indicate any irregularity on the part of the Bank and many a times such enquiries are conducted across the sector. We have not received any notice for any demand of indirect tax on Cenvat credit of service tax paid to ATM service provider. We shall deal with the same in accordance with applicable legal provisions as and when we receive the notice,” a SBI spokesperson said.

Email queries sent to PNB, Canara Bank and Syndicate Bank did not elicit any response till the time of going to press. “We have been requested by DGGSTI to share information about our transactions with some banks and we are cooperating with the authorities,” a spokesperson for NCR Corporation said. Tata Payments Solutions did not respond to ET’s queries while AGS said that they have not received any notice from DGGSTI. An AGS official on the condition of anonymity though confirmed that a query has been received from the tax authorities which was part of normal business procedures.

A Hitachi spokesperson said that the investigations were been carried out on banks and not the company.

“Also we would not be able to provide any information if required, considering strict guidelines,” a Hitachi spokesperson said.

Tax sleuths are investigating whether VAT should be applicable on contracts between the banks and ATM service providers. “In most cases only service tax has been paid and banks have taken credit of the same. While in some cases no service tax was applicable and only VAT had to be paid, in other cases VAT had to be paid on partial amount,” a person close to the development said.

Under the earlier regime, banks could only take credit of service tax and not VAT— that is future tax liabilities could be set off against the credit. “It was in banks’ advantage if service tax was levied and VAT wasn’t. Since banks could take credit of the same,” said a senior executive working with one of the ATM service providers.

Most banks either buy their ATMs or outsource it to service providers. DGGSTI is investigating how many of the contracts between the ATM service providers and the banks were “disguised contracts” and how many of those were “fraudulent contracts”. Banks sign different types of contracts with ATM providers.

“The question is whether the service provider was only providing or leasing the ATM to the bank, or the contract also involved maintaining other services like cash replenishment, maintenance of the ATM, taking care of the security guard, taking care of the air conditioning in the ATM centre. If the contract was only for supplying ATMs and nothing else, then VAT has to be paid on the transactions,” said the person in the know.

DGGSTI had asked all the ATM suppliers to submit details by 11am on March 26. “The intelligence arm has a national jurisdiction and they tend to rely on deep analysis and insights drawn from structured and unstructured data collated from vide variety of sources,” said a senior executive working in an organisation that has received the communication. Sources in the know say that a dedicated team of DGGSTI intelligence officers have been researching on this particular issue for the past four months before action was initiated.

The intelligence unit is also investigating companies that provide software, security and other ATM related services to these banks, people close to the development said.

[The Economic Times]