News Update

No Service Tax on use of ATMs – clarification through PIB

09 03 2006

When the excited boys of our editorial team wanted to do a piece on Service Tax on ATMs immediately after the budget, I for one was not impressed. There is no tax on the ATM user and for card services, users are already taxed. Whats there to write about? But our boys were persistent. They went out and surveyed for a solution and surprisingly they found that there was tremendous ignorance. Revenue officials and Bankers were more confused than ordinary, worried bank card users. There was a terrible fear that every ATM transaction is going to be taxed and as a percentage of the money you withdraw. Our teams told the worried users that there was no such tax but people really did not believe our boys.
In his report, our Senior Correspondent wrote

Whatever the case may be it seems that confusion is prevailing among the stakeholders and there is a need that the government should come out with a clarification. Especially the common man who doesnt understand the fine-prints of the budget documents will not believe if TIOL team says that there is no need of worry and there will be no additional cost on the services they are availing from the banks.

His parting shot was,

So whats new? But people and bankers are worried. The Government should clarify the position soon.

We carried this report on 2nd of March. We are happy to report that the Government has indeed come out with a clarification that Service Tax is not proposed to be levied on use of cards in ATMs. May be for wider coverage, the government has released this clarification through PIB. The clarification reads as follows :

Services provided in relation to Automated Teller Machine (ATM) operations, maintenance or management is proposed to be brought under the levy of service tax in the Finance Bill, 2006 vide section 65 (105) (zzzk) of the Finance Act, 1994.  The term Automated Teller Machine is defined under clause (9a) of Section 65 and the term Automated Teller Machine operations, maintenance or management service is defined under clause (9b) of Section 65.

A question has been raised as to whether the proposed levy of service tax will have any impact on the holders of credit cards, debit cards, charge cards and other payment cards who use ATM for withdrawal of cash.

Service tax, under the proposed service, is not leviable for use of ATM by the card holders.  Service tax on the proposed taxable service is leviable only if the services provided are in relation to operations, maintenance or management of ATM and are outsourced by banks to third parties.  Third parties who provide services to banks in relation to ATM operation, maintenance or management are covered under the category of the proposed service.  When ATMs are operated, maintained or managed by banks on their own, service tax liability does not arise.

It is, therefore, clarified that the proposed service under Section 65(105)(zzk) of the Finance Act, 1994 will not result into any additional service tax liability on the users of ATMs.

4% additional duty certain exemption withdrawn

The 4% duty is still in news, now with the Government amending notification No. 20/2006 cus to specify that the following goods are  excluded from the exemption from the additional duty.


8525 20

Cellular Phones and Radio trunking terminals


8471 70 or

8473 30

The following goods, namely:-
(a) Microprocessor for computer, other than
(b) Floppy disc drive;
(c) Hard disc drive;
(d) CD-ROM drive
(e) DVD Drive;
(f) USB Flash memory
(g) Combo drive

NOTIFICATION NO.  24 /2006-Cus., Dated: March 6, 2006

Biscuits classification corrected

The Notification No. 2/2006 CENT specifies the abatement for MRP based value. In the table sl No. 13 shows heading 19051920 as biscuits. Whats wrong with it? Absolutely nothing except the fact that the Tariff does not contain any such heading. Obviously somebody in the Board has noticed this and the notification is amended to make the heading as 1905 90 20. Good correction indeed.

CORRIGENDUM  in F.No.334/3/2006-TRU  Dated: March 6, 2006

Motor Vehicles exemption - its up to 7 persons, not 7 persons

Exemption Notification No. 6/2006 Central Excise , in respect of vehicles mentions, Motor vehicles falling under heading 8703 for transport of 7 persons, including the driver Now the Notification is amended to make it of up to 7 persons instead of 7 persons.

CORRIGENDUM  in F.No.334/3/2006-TRU  Dated: March 6, 2006

 Consensus ad idem

A meeting of the minds one of the essential requisites for a valid contract

When two parties to an agreement (contract) both have the same understanding of the terms of the agreement. Such mutual comprehension is essential to a valid contract. It is provable by the express provisions of a written contract, without reference to any statements or hidden thoughts outside the writing. There would not be a meeting of the minds if Bill Buyer said, "I'll buy all your stock," and he meant shares in a corporation, and Sam Seller said, "I'll sell all my stock to you," and meant his cattle.

It is only when all parties involved are aware of the formation of a legal obligation is there a meeting of the minds.

But this is one of the most misunderstood phrases by even eminent lawyers and judges.
Some right and some wrong use of the phrase


1. The theory of consensus ad idem applied by the Courts led to the proposition that an implied agreement between the parties was, to have agreed in facts. Reasonable implication was not presumed, but necessary implication was called for. HLL v Commissioner - 2003 (160) E.L.T. 806 (Tri. - Bang.)

2. In the BSNL case we reported this week,
2006-TIOL-15-SC-CT-LB, it was observed thatTo constitute a transaction for the transfer of the right to use the goods the transaction must have the following attributes:

a.  There must be goods available for delivery;

b. There must be a consensus ad idem as to the identity of the goods;


In this regard, I may mention that it was the consensus-ad-idem of all the High Courts in our country that in the context of stringent punishments provided under the N.D.P.S. Act for the various offences, the mandatory provisions were built in for the purpose of providing a total check over the unfettered powers vested with the officers from implicating false persons ruthlessly. Madras High Court in 1994 (73) E.L.T. 281 (Mad.)

But strangely a corrupt version of this phrase is popularly used. You can find the phrase ad idem in many judgements. There is no such phrase. Ad idem" is a frequent misspelling of the Latin words ad diem meaning "on a particular day" and, if used as an adjective, could mean "up to date." The reason that lawyers miss this phrase, or misemploy it, is not just because their spell check does not work but because idem is a legitimate adverb in Latin. If the words AD IDEM are actually spelled that way, and are not in fact a misspelling, then it means "to the same"
The law, as manipulated by clever and highly respected rascals, still remains the best avenue for honourable and leisurely plunder.

(Gabriel Chevallier (1895-1969) 

Until tomorrow with more DDT and the budget

Have a nice day.

Mail your comments to


Sub: service tax on ATM users

It is true that the Automated teller machine operations, maintenance or management service introduced by clause 9b in Section 65 of the Finance Act 1994 sent shivers down the spine of an ordinary ATM user for the fear of his every cash withdrawal from the ATM getting taxed inspite of such taxable service (clause zzzk of Section 65(105)not affecting the average ATM user. But the real trouble for the ordinary ATM user is not in this taxable service but in the taxable service sought to be introduced by virtue of clause 33a i.e., "credit card, debit card, charge card or other payment card service" where the service rendered by a banking company, financial institution including nbfc or any other person issuing such a card to a card holder and other definitions in clauses (ii) and (iii) of clause 33a.
Normally every SB account holder in a bank nowadays is provided with an ATM debit card subject to certain conditions mostly minimum balance and amount of transactions etc which is generally perceived to be free but since there is nothing like a free lunch in this world hereafter all banks will show the cost of issuing such cards to their account holders (service charges for issuing such cards) and service tax will be liable on such charges. So no free lunches for ATM card holders which is equally applicable for credit card or anyother card holders. Service tax will be of course payable by the banks, nbfcs etc but it will be passed on to the card holders here after.

Posted by santosh hatwar

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