The GST department has launched an investigation to determine the reasonability of the 100% refunds claimed by banks on GST paid on vendor services for ATMs. Depending on the results of the scrutiny, the department may ask banks to pay back the credits availed by them.
According to a report, many banks had claimed and most of them successfully availed a 100% credit of GST on services provided by ATM vendors. However, the thing to notice here is that most of such services such as ATM withdrawals are free (not charged) to users, so is it legit for banks to claim credit for these services?
The banks usually hire the services of private vendors for tasks such as maintenance and cash deposit to ATM machines. The vendors charge a fee for their services, which is generally calculated per withdrawal, and also add GST to that fee. Banks, therefore, have to pay GST on these services even though they are not levying any fee for ATM transactions from their consumers. To cover the added cost, banks have started claiming the credit of input tax paid by them to vendors. This activity has now come under the taxmen scanner.
According to the tax officials, banks should not claim 100% credit on services like ATM withdrawals since many of these services are free to consumers.
The investigation held by the department revealed that only about 40% of bank ATM transactions performed by consumers are chargeable. Banks should claim a refund only on those services for which they charge their customers, and not on all ATM transactions. If that happens, banks would occur a huge loss of credit.
“The process of investigations has gained pace and banks could get notices/summons asking for clarification and data to enable the authorities to proceed further in the coming months,” said a GST official. “So if a vendor maintains an ATM and charges say Rs 2 per withdrawal for 100 withdrawals in a month, the total fees would come to Rs 200. On that 18% GST would be levied, most banks avail credit of this GST paid by their vendors when they charge their customers. The problem here is, banks do not charge for all the transactions, so how could they claim credit for full GST paid by the vendors?” he added.
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This is not the first case when banks have been scrutinized for non-compliance with tax laws. Recently, many leading banks, including the State Bank of India, ICICI Bank, HDFC Bank, etc, received a show cause notice from the tax department asking them to pay their pending service tax, which amounts to around Rs 40,000 crore. According to the report, these banks and many other are liable to pay a 12% service tax, which is reportedly pending since 2012, including 18% interest on the tax amount and a 100% penalty.
Apart from that, the indirect tax department’s intelligence arm has also recently issued notices to various public sector banks along with six ATM providers regarding VAT credit manipulation issues. The said banks and their associated ATM vendors are said to have formed fraud contracts in order to avoid payment of VAT and claim tax credits wrongfully. The investigation is being conducted to determine the possibility of tax frauds.
