Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com HRindiaonline.com
 
LOGIN
Forgot Password |  Register
Tuesday , March 31, 2015 | Updated : Mar 31, 16:19 IST
Income Tax    Customs    Excise    Service Tax    FEMA    DGFT    SEZ    Misc    Pitara    Budget   
About Us Contact Us Advertise
Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com
NEWS FLASH
 
APA - CBDT extends deadline for filing roll back application to June 30, 2015 (See 'Mixed Buzz') Ease of Doing Business - Commerce Ministry to empower SEZ Development Commissioner to reduce paper work Cus - Multifunction machines are different and distinct from photocopying machines and,therefore, during period prior to amendment of FTP w.e.f 5.6.2012, import of these goods did not require any import licence: CESTAT by Majority (See 'Breaking News') Non-stop service to facilitate trade between India & Qatar: First Direct Container vessel reaches Doha CII Business Confidence Index marginally improves in Q4 Import of old photocopier - for determining value of used capital goods, NIDB data is not relevant as no two consignments of used goods would be comparable - enhancement of value rejected: CESTAT by Majority (See 'Breaking News') FTP - Tomorrow? + FTP - Guidelines for processing of online IEC applications (See 'DDT') Income tax - Whether if assessee-club sells complimentary liquor for a price, such activity is to be construed as commercial in nature - YES: ITAT (See 'Breaking News') Refund under Rule 5 - Implications of amendment in Budget 2015 (See 'ST se GST tak') ST - Amount paid in excess during investigation - Merely because adjudicating authority had appropriated amount paid towards tax demand, refund cannot be denied when Commr(A) reduced tax liability by holding that excess amount is not deposit & claim is hit by bar of limitation: CESTAT (See 'Breaking News') Company Law - Amounts received by private companies from their members, directors or their relatives before 1st April 2014 - Clarification (See 'DDT') Whether final order of re -assessment passed without giving opportunity of hearing to assessee is void ab initio (See '2015-TIOL-772') Pension Cut for CRPF Commandant using an official vehicle while on leave (See 'DDT') India about to enter into high trajectory growth orbit, says President Mumbai CBI nabs Income Tax Officer accepting bribe Election Commission organises consultation on 'Political Finance & Law Commission Measures' (See 'Mixed Buzz') TRAI seeks feedback on over-the-top services (See 'Mixed Buzz') President confers Bharat Ratna on Madan Mohan Malviya posthumously Service tax e-payment can be made till midnight of March 31; RBI extends banking hours till 8 pm tomorrow (See Cir 182 in 'What's New') 14 % Service Tax not with effect from 1st April 2015 – Nagpur Commissioner’s Clarification (See 'DDT') CX - while incorporating provision into existing statute, Legislatures are fully aware of position of law - Pre-deposit mandatory even in respect of orders passed prior to 06.08.2014 and appeals filed thereafter: CESTAT (See 'Breaking News') DRI alone seizes over 200 kg gold on All India basis in past 72 hours CX - Digital Records - Board Proposes to issue Notification and Circular - Invites Feedback (See 'DDT') I-T - Whether insertion of Explanation to Sec 80-IB(9) vide Finance Act, 2009 with retro effect explaining meaning of term 'undertaking' is unconstitutional and ultra vires to Article 14 of Constitution - YES: HC (See 'Breaking News') Interest on differential duty consequent to final assessment (See 'Guest' Column) ST - Work undertaken is harvesting & transporting sugarcane to factory for which labour is employed - Service brought under tax net under Manpower Recruitment envisages supply of labour per se - Demand not sustainable: CESTAT (See 'Breaking News') Registration - Netizens frustrated by ACES (See 'DDT') I-T - Whether sec 127(2)(a) is a machinery provision and CIT is having power of transfer even without assigning any reason: HC (See '2015-TIOL-767')
 
Bookmark and Share
Service Tax - Chit Funds not taxable under 'Banking and other financial services' - Board Circular quashed: AP High Court

By TIOL News Service

HYDERABAD, OCT 14, 2008 : IN the writ petitions, the petitioners sought for a mandamus and assailing the correctness of CBEC circular No. 96/7/2007-ST (Reference Code. 034-04) dated 23.8.2007 and proceedings No. HAST 141/2007 dated 18.12.2007 issued by the Commissioner as being violative of Article 14, 19 (1) (g) and 265 of the Constitution of India and Section 65 (12) 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.

The Board Circular may be seen for a clear understanding:

Services are provided in relation to chit funds. Chit Funds are of two types, namely :-

(a) Simple Chit Funds: In this case, members agree to contribute to the fund a certain amount at regular interval. Lots are drawn periodically and the member, whose name appears, gets the periodical collection. No separate amount is charged from the members.

(b) Business Chit Funds: In this case, there is a promoter known as foreman who draws up the terms and conditions of the scheme and enrolls subscribers. Every subscriber has to pay his subscription in regular installments. The foreman charges a separate amount for the services provided. Some States prescribe a ceiling limit for the amount to be charged by such promoter for the services provided. Commission amount is retained by the promoter as consideration for providing the services in relation to chit fund.

Whether services provided in relation to chit fund is leviable to service tax under “banking and other financial services” or not?

The Board’s clarification reads as,

Reserve Bank of India has clarified that the business of a chit fund is to mobilize cash from the subscribers and effectively cause movement of such cash to keep it working and, therefore, the activity of chit funds is in the nature of cash management.

(a) In the case of Simple Chit Funds, no consideration is paid or received for the services provided and, therefore, the question of levy of service tax does not arise.

(b) In the case of Business Chit Funds, cash management service is provided for a consideration and, therefore, leviable to service tax under “banking and other financial services”.

The petitioners made it clear to the Department that the very assumption by the respondents to treat the chit fund business to fall within the ambit of asset management is not correct nor valid in law and further pointed out that there is subtle difference between the banking and financial services as defined under the Act with that of the Chit transactions, therefore, no liability can be fastened on them.

Further it is pointed out that the Department cannot levy a tax for the first time on a totally new arena by issuance of a circular.  As long as the Finance Act is not properly modified or amended to bring within its fold the chit transactions, the demand made by the Department is totally unsustainable. 

It was further pointed out that even when the Budget proposals were made for 2007-08, the Hon’ble Finance Minister did not give any indication that the cash management would include the chit fund business and therefore it is neither the policy decision nor the law as enunciated at the relevant point of time to bring the chit fund business within the ambit of the asset management and thus the entire levy and demand is totally illegal, unconstitutional and as such liable to be set aside. 

The High Court observed,

It is not disputed that the taxing statute needs to be interpreted strictly.  It must be very specific about its levy rather than to import deeming interpretation.  The petitioners specifically raised a plea in the affidavit filed in support of the writ petition that at the time of introduction of the service tax before 1994 or later when the Finance Act has undergone amendment and during the discussions of the Budget proposals, no indication was given by the Finance Minister to extend the provisions of service tax to the chit funds business.  There is no denial on this aspect nor there is any explanation.  Therefore, be it an asset management or cash management, both expressions strictly speaking did not find place in the definition clauses under any of the Finance Acts.  It does not include or exclude the chit transaction or business specifically.  There cannot be any dispute that the very nature of business and transaction under the chits as can be culled out from the provisions of the Chit Fund Act and it stands on its own as a class.  It does not have any parlance or similarity to that of normal transactions as one understood under the law or commercially.   Admittedly, there is no provision whatsoever by including specifically the chits within the meaning of either ‘cash management’ or ‘asset management’.  Therefore, irrespective of such amendment either by earlier inclusion or later exclusion of those expressions, it will not have bearing on the chit transaction.

The HC recalled the basic principles of taxation:

  • No tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden upon him.
  • The subject cannot be taxed unless he comes within the letter of the law; the argument that he falls within the spirit of the law cannot avail the Department.

  • Tax and equity are strangers and an equitable construction cannot be put upon the words of a taxing statute.
     
  • In a taxing Act one has to look merely at what is clearly said.  There is no room for any intendment.  There is no equity about a tax.  There is no presumption as to a tax.  Nothing is to be read in, nothing is to be implied.  One can only look fairly at the language used

Therefore in the absence of a specific statutory definition of ‘cash management’ or even ‘asset management’, 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 265 of the Constitution of India.  

The entire action 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 impugned circular dated 23.8.2007 and consequential proceedings dated 18.12.2007 are set aside and accordingly the writ petitions are allowed.

(See 2008-TIOL-502-HC-AP-ST in 'Service Tax' + 2008-TIOL-502-HC-AP-ST in 'Legal Corner')


POST YOUR COMMENTS
   
 
 
Subscribe to TIOLTube
Download TIOL App
TIOL SEARCH
 
TIOL Subscriptions
 All-In-One Package
 Indirect Tax Package
 Income Tax Package
<< More Packages>>
 
   
             
Income Tax Customs Excise Service Tax FEMA DGFT SEZ Misc Pitara Budget
  • Notifications
  • Circulars
  • SC Cases
  • HC Cases
  • ITAT Cases
  • Instructions
  • Advance Ruling
  • Settlement
  • Other Case
  • Directorate of Income Tax (Systems)
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Settlement
  • Advance Ruling
  • Safeguard Duty Notfn
  • Anti-dumping Notfn
  • Drawback Cases
  • MISC Circulars
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Settlement
  • Advance Ruling
  • Excise Amendment
  • Clean Energy Cess Notfn
  • MISC Circulars
  • 37B Order
  • Commr.(A) Order
  • CESTAT
  • Notifications
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Miscellaneous
  • Advance Ruling
  • FAQ
  • Finance Act, 1994
  • Commr. (A) Orders
  • 37B Order
  • Removal of Difficulty
  • VCES
  • Accounting Head
  • Exchange Manual
  • Fema Notifications
  • SC Cases
  • HC Cases
  • RBI Notifications
  • Act
  • Rules
  • Regulations
  • Master Circulars
  • RBI Circulars
  • Depository Scheme
  • Press Note
  • Notifications
  • Circulars
  • Public Notices
  • Trade Notice
  • FTDR Amendment 2010
  • MISC
  • State Acts
  • Notifications
  • Instructions
  • Act 2005
  • Rules 2006
  • DGEP
  • State Policy
  • SC Cases
  • HC Cases
  • VAT Cases
  • Deputation Posts
  • Service News
  • The Insider
  • Transfer
  • Promotion
  • Recruitment Rules
  • Transfer Policy
  • Training Circulars
  • Service Cases
  • MISC
  • Pay Commission
  • Cadre Review
  • Budget Circular
  • Union Budgets
  • Economic Surveys
  • Budget Speeches
  • Finance Acts
  • Finance Bill
  • TRU - D. O. Letter
  • A Taxindiaonline Website. Copyright © 2014 Taxindiaonline.com Pvt.Ltd. All rights reserved. | Powered by 4th Dimension