Cheat Funds? No ST? Going the Renting way?
SERVICE Tax on Chit Funds was introduced by a backdoor method with a Circular No. 96/7/2007-ST, dated, 23.08. 2007, wherein the Board thought that Chits are covered under “banking and other financial services”.This Circular was quashed by the AP High Court in 2008-TIOL-502-HC-AP-ST. Revenue has taken this to the Supreme Court where it is pending.
Please see 29.05.2008.
Come 2012 and the Babu has failed again in drafting law. The Education Guide on Service Tax does not really educate, but only tells what the Babu wanted the law to be. Para 2.8.2 of the Education Guide reads:
2.8.2 Would a business chit fund come under 'transaction only in money'?
In business chit fund since certain commission received from members is retained by the promoters as consideration for providing services in relation to the chit fund it is not a transaction only in money. The consideration received for such services is therefore chargeable to service tax.
But, the Delhi High Court thought otherwise. While disposing of the Writ Petitions filed by Delhi Chit Fund Association, the High Court held that - In a chit business, the subscription is tendered in any one of the forms of 'money' as defined in section 65B(33). It would, therefore, be a transaction in money. So considered, the transaction would fall within the exclusionary part of the definition of the word 'service' as being merely a transaction in money. This would be the result if the argument that the exclusionary part of the definition in clause (a) is considered to have been enacted ex abundant cautela; if the argument based on Explanation 2 read with the exclusionary part of the definition is accepted as correct, even then the services rendered by the foreman of the chit business for which a separate consideration is charged, not being an activity of the nature explained in the said Explanation, would be out of the clutches of the definition. Either way, there can be no levy of service tax on the footing that the services of a foreman of a chit business constitute a taxable service.
As usual, the department will take the matter to Supreme Court and notwithstanding that, the next Budget may see a retrospective amendment to clause (a)(iii) to Section 65B(44) as under :
"(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include -
(a) an activity which constitutes merely, -
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or.
(iii) a transaction in money or actionable claim; Other than the transactions in a Chit Fund.
The Board can consider this even in this year's Finance Act they have about ten days' time.