SERVICE TAX LEVY ON CHIT FUNDS
The High Court of Judicature for Andhra Pradesh at Hyderabad vide Writ Petition Nos. 27706 of 2006 , 6028 and 6114 of 2008 decided on 14/07/2008 in re: A.P. FEDERATION OFCHIT FUNDS vs U.O.I. held:
QUOTE: The petitioners herein include many of the chit fund companies and a registered Federation of Chit Funds, of which those companies are members in the writ petitions. The petitioners sought for a MANDAMUS and assailing the correctness of Circular No. 96/7/2007-ST [Circular No. 034-04] dated 23/08/2007 and proceedings No. HAST 141/2007, dated 18/12/2007 isssued by the second respondent as being violative of Articles 14, 19(1)(g) and 265 of the Constitution of India and Section 65(2) read with Section 65(105)(zm) of the Finance Act, 1994 and to set aside the same. The case of the petitioners is that they are doing business in chit funds, the transactions of which are clearly covered by the provisions of the A.P. Chit Funds Act, 1971 and the Rules made thereunder. According to them, very nature of transaction stands quite apart. In support, the petitioners referred to various provisions of the said Act.=UNQUOTE
According to the Court, after having considered the submissions made and on perusal of the material, the crux of the matter for consideration is as to whether the petitioners” business i.e. chit fund fall within the mischief of expression “CASH MANAGEMENT”, as amended under sub-section 12 of Section 65 of the Finance Act, 2007 and consequently under the impugned circular issued by the resondent is valid?
The Court observed that in the absence of a specific statutory definition of “CASH MANAGEMENT” or even “ASSET MANAGENENT ” the question of its wider interpretation either by seeking to include or exclude any other transactions or business does not arise and is not permissible and any such act on the part of the Executive would certainly be in the teeth of Article 256 of the Constitution of India. Even the arguments to rope in the definition of the financial institution under the RBI Act, which has been mentioned, could not come to the rescue of the respondents herein to extend the levy of Service Tax on the chit business, since, as per the said definition such business is included. However, it is to be noticed that the said provision has been in vogue all along, and it is not the case of the respondents that by borrowing the same, the Service Tax could have been levied even much earlier irrespective of the aforesaid Finance Act as mentioned above, which has undergone changes. Therefore, it is not open for the respondents herein merely because a change is brought in the Finance Act and therefore the provisions of the RBI Act would step in cannot be a sound basis.If at all, the respondents wanted to extend the levy to such business, it would have been easier for them to specifically include the same rather than in trying to borrow from different other provisions, which cannot be extended. Therefore, it is quite simply clear that in the absence of any such inclusive definition available in the Statute, it cannot be said that the petitioners would fall within the mischief of the aforesaid provision. The entire action, therefore on the part of the respondents in trying to extend the levy of the tax for the first time by way of a circular is merely an executive fiat, which is not permissible under the law.
The High Court proceeded further by concluding that for the foregoing reasons, the impugned circular dt. 23/08/2007 and consequential proceedings dated 18/12/2007 are set aside and accordingly the writ petitions were allowed.
The matter now goes back to the Tax Research Unit of the Central Board of Excise and Customs to initiate further action to get the chit funds business duly brought under the Service Tax net, after consulting the Law Ministry. Till then the Chit fund companies can have HAPPY DAYS.
[for full text of the judgement please visit www.taxesinindia.com and click on taxind_2008_hc_ap_wp_27706]==RAGGHUPATHY VENKATRAMAN, Web Admin.