Diebold Systems Pvt. Ltd., a company engaged in the business of manufacturing and supplying Automated Teller Machines (ATMs) and related services, was in dispute with the Commissioner of Commercial Taxes regarding the classification of their product under the Karnataka Value Added Tax (KVAT) Act.
The primary issue was whether ATMs should be classified as “computers” and thus be eligible for a lower tax rate or if they should be classified under a different category attracting a higher tax rate.
ISSUE
Whether ATMs qualify as computers and fall under Entry 20(i) of Part 'C' of Second Schedule to the Act.
CONTENTIONS
Diebold Systems:
Argued that ATMs are a combination of computers and peripherals, primarily used for dispensing cash.
Requested the classification of ATMs under Entry 20 of Part 'C' of the Second Schedule, which covers computers and peripherals.
Commissioner of Commercial Tax:
Contended that ATMs are not standalone computers but are connected to a central computer network.
Asserted that ATMs should be classified as electronic goods under Entry 4 of Part 'E' of the Second Schedule.
COURT REASONING
Defined ATMs as Automated Teller Machines, consisting of data terminals and various input/output devices.
Highlighted the connection between ATMs and a host processor, emphasizing their function in facilitating banking transactions.
Noted the physical components of ATMs, such as card readers, keypads, and cash dispensing mechanisms.
Interpreted the Karnataka Sales Tax Act, emphasizing that the Schedule forms a crucial part of the fiscal enactment and the definitions therein are definitive.
Rejected the argument that ATMs qualify as computers under Entry 20 of Part 'C' based on the Information Technology Act's broader definition of computers.
Concluded that ATMs, being electronic devices facilitating banking transactions, do not fit the classification of computers but rather fall under electronic goods.
JUDGEMENT
The appeal was rejected, affirming the Commissioner's decision that ATMs are not computers but electronic devices. Therefore, they are subject to taxation under the relevant entry for electronic goods in the Karnataka Sales Tax Act.