The indirect tax department’s investigation arm is scrutinising the GST credit availed by banks on taxes paid by their ATM vendors and could soon ask banks to cut the credit availed by them, two people with direct knowledge of the matter said.
The taxmen are examining whether banks are eligible to avail 100% of Goods & Services Tax (GST) credit on services provided by vendors such as ATM withdrawal when a majority of such transactions are not charged to consumers.
The scrutiny started after banks claimed 100% input tax credit on the amount paid to ATM vendors who are responsible for maintenance and cash supply to the machines.
The vendors charge per withdrawal and add GST on the bills submitted to banks. Now, the banks have claimed input tax credit on the amount paid to vendors but this practice has come under the scanner.
The tax officials believe that since banks don’t charge on many withdrawals which are free to customers, 100% input credit should not be claimed.
The investigators have discovered that banks on an average charge only for about 40% of the ATM transactions from their customers. If the transactions are correlated on a one-on-one basis and input tax credit is taken only on those that are chargeable, there would be a considerable loss of credit to the banks.
“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 an official in the know.
Explaining the issue further he added, “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 asked.
The finance ministry is believed to be unhappy with this and is set to strike down the demand but not before a strong complaint from banks.
Separately, the intelligence arm of the indirect tax department had also issued notices to four public sector banks and half a dozen ATM service providers for alleged manipulation of VAT credits.