Cheat Funds? No Service Tax? Supreme Court rejects SLP against AP High Court Order
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 still pending.
Come 2012 (the negative list era of taxation) and the Babu 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.-
The Supreme Court dismissed the Special Leave Petition against the Delhi High Court Judgement. -
In the meanwhile, following the Delhi High Court decision, the AP High Court held,
It appears that the same notification, which is challenged here was challenged before the Delhi High Court and by judgment dated 23.4.2013 rendered in the case of DELHI CHIT FUND ASSOCIATION vs. UNION OF INDIA & OTHERS in W.P. (C) 4512/2012, the Delhi High Court has quashed the said notification.
In view of the above judgment of the Delhi High Court, we are not required to once again quash the impugned notification. Obviously, the judgment of the Delhi High Court will be operating in the field unless and of course the same has not been upset or set aside by the Hon'ble Supreme Court.
The Department took even this case to the Supreme Court.
The Supreme Court in a recent order observed,
We do not find any reason to entertain this petition. The Special Leave Petition is, accordingly dismissed.
Will they keep quiet now or amend the Law again retrospectively in the 2015 budget?