Case Law Details
All Kerala Association of chit funds Vs Union of India (Kerala High Court)
The issue agitated by the Revenue is as to whether between 2012 and 2015 there could be tax levied on the chit transactions deeming it to be a service, which has not been excluded in the definition nor included in the negative list. To answer this, we just have to notice para 21 of the decision of the Honorable Supreme Court, which is extracted below:-.
“The aforesaid historical background would demonstrate that admittedly upto June 14, 2007, chit fund business was not exigible to service tax. Likewise, from July 01, 2012 to June 14, 2015, no service tax was payable. Present dispute concerns the intervening period from June 15, 2007 to June 30, 2012, the outcome whereof depends upon the definition of banking and financial service contained in sub-section (12) of Section 65 of the Act and particularly sub-clause (v) thereof as amended in 2007.” (emphasis supplied)
Hence the issue whether between 2012 and 2015, the tax can be levied on the chit transactions is beyond the scope of dispute. The Honourable Supreme Court having held in the negative, the issue is no longer res integra.
Now, we come to the Finance Act, 2015, by which the sub-section (44) of Section 65B of the Finance Act was amended and an explanation was introduced. The Revenue contends that the aforesaid amendment is merely clarificatory in nature and would be applicable from 2012 onwards. We are unable to countenance such a contention, especially, going by the decision of the Honourable Supreme Court. The Honourable Supreme Court dilating upon the principle that a taxation statute should be strictly construed and if any ambiguity be found to exist, it should be resolved in favour of the citizen.
Hence, the amendment made in 2015 cannot be said to be clarificatory and there can be no retrospective operation given to such amendment. The legislature felt the need for inclusion of the transactions within the fold of service and hence amended the Finance Act, 1994 by Finance Act, 2015. As a corollary it has to be understood that it was not taxable prior to the amendment. We are hence of the opinion that the decision of the Honourable Supreme Court covers the two periods as agitated before this Court in the batch of Writ Appeals/Writ Petitions. W.A.No.281/2018 filed by the Revenue is dismissed and the other Writ Appeals\Writ Petitions are allowed.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:
The issue raised in all these Appeals/Writ Petitions are with respect to the liability of chit transactions, to service tax as arising from the Finance Act, 1994. The issue arises during three periods, in so far as the amendments made to the Finance Act, 1994. They are, pre-2012, between 2012 to 2015 as also post-2015. According to the various establishments carrying on chits, who are the appellants in the maximum number of appeals/petitions in the batch, contend that the issue is squarely covered by AIR 2017 SC 3730, Union of India v. Margadarshi Chit Funds (P) Ltd. The learned Standing Counsel appearing for the Revenue submits that there is ambiguity in so far as the coverage between 2012 and 2015. An appeal is also filed by the Commissioner of Central Excise, Service Tax & Customs, numbered as W.A.No.281/2018.
2. As to the history of the litigation, when chit fund business were sought to be levied with service tax, a batch of Writ Petitions were filed before the Andhra Pradesh High Court in which it was held that the chit fund business would not be covered under the Finance Act, 1994. Special Leave Petitions were filed before the Honourable Supreme Court, which was converted into Civil Appeals. While they were pending, a batch of Writ Petitions were filed before this Court, in which a learned Single Judge differed from the findings of the Andhra Pradesh High Court and held in favour of the Revenue by decision reported in 2013 (29) STR 557 (Ker.): 2012 (4) KHC 756, All Kerala Association of Chit Funds v. Union of India. Appeals were filed by the writ petitioners and the writ petitions pending and then filed, were posted along with the appeals. Pending these appeals, the Civil Appeals from the decision of the Andhra Pradesh High Court were considered and the liability negatived by the Honourable Supreme Court in AIR 2017 SC 3730. The decision of the Kerala High Court was specifically overruled. Later, some writ petitions filed were allowed, following the decision of the Honourable Supreme Court. One such judgment is challenged by the Revenue contending that the Apex Court has not considered the amendment of 2012. In such circumstances, the Writ Appeals/Writ Petitions have to be adjudicated based on the finding of the Honourable Supreme Court.
3. The issue briefly stated is, prior to 2007, there was definition of various ‘Services’ exigible to tax under Finance Act, 1994. Section 65(12)(v) defined “banking and other financial services”, which was as follows:-
(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or any commercial concern, namely:
(i) (ii) (iii) (iv)
(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management.”
4. The chit transactions were not assessed till 01-06-2007, when an amendment was made to Section 65(12)(v), deleting the words “but does not include cash management”. The Revenue then issued notices to the establishments carrying on chit business demanding tax under the Finance Act, 1994, which led to the aforesaid litigation. The Andhra Pradesh High Court held that the deletion of ‘cash management’ from the inclusive definition would not enable the chit transactions to be taxed, since the said transaction would not come under the definition of cash management. The Honourable Supreme Court affirmed the view of the Andhra Pradesh High Court and elaborated on what exactly cash management is, finding chit transactions to fall outside such terminology.
5. In 2012, the inclusive definition of “services” was done away with and Section 65B(44) was introduced with a definition of services and a negative list, which would not be taxable. The same is 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;
xx xx”
The negative list is available under Section 66D. A transaction in money or actionable claim having been specifically excluded, the contention was that chit transaction would not come under the definition of ‘service’ as available in Section 65B(44). The issue agitated by the Revenue is as to whether between 2012 and 2015 there could be tax levied on the chit transactions deeming it to be a service, which has not been excluded in the definition nor included in the negative list. To answer this, we just have to notice para 21 of the decision of the Honorable Supreme Court, which is extracted below:-.
“The aforesaid historical background would demonstrate that admittedly upto June 14, 2007, chit fund business was not exigible to service tax. Likewise, from July 01, 2012 to June 14, 2015, no service tax was payable. Present dispute concerns the intervening period from June 15, 2007 to June 30, 2012, the outcome whereof depends upon the definition of banking and financial service contained in sub-section (12) of Section 65 of the Act and particularly sub-clause (v) thereof as amended in 2007.” (emphasis supplied)
Hence the issue whether between 2012 and 2015, the tax can be levied on the chit transactions is beyond the scope of dispute. The Honourable Supreme Court having held in the negative, the issue is no longer res integra.
6. Now, we come to the Finance Act, 2015, by which the sub-section (44) of Section 65B of the Finance Act was amended and an explanation was introduced in the following manner:-
“Explanation 2.- For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include-
(i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out –
(a) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner;
(b) by a foreman of chit fund for conducting or organizing a chit in any manner.”
Herein, the transactions “by a foreman of chit fund for conducting or organizing a chit in any manner” was specifically excluded from the definition of transaction in money or actionable claim. As a consequence, the chit transaction becomes liable to tax under the Finance Act, 1994, from 2015 onwards.
7. The Revenue contends that the aforesaid amendment is merely clarificatory in nature and would be applicable from 2012 onwards. We are unable to countenance such a contention, especially, going by the decision of the Honourable Supreme Court. The Honourable Supreme Court dilating upon the principle that a taxation statute should be strictly construed and if any ambiguity be found to exist, it should be resolved in favour of the citizen, refers specifically to the decision reported in CIT v. Vatika Township Pvt.Ltd., (2015 (1) SCC 1) and holds in para 33 thus:
“The matter can be looked into from another angle as well. The aforesaid description of cash management as a management tool in any case, throws doubts on the claims of the Revenue and it cannot be claimed by the Revenue that the position as to whether chit fund business is cash management is specific or certain. We are dealing with a taxing statute and when we find that goods falls within the domain of uncertainty, it would be difficult to lean in favour of the Revenue.”
8. Hence, the amendment made in 2015 cannot be said to be clarificatory and there can be no retrospective operation given to such amendment. The legislature felt the need for inclusion of the transactions within the fold of service and hence amended the Finance Act, 1994 by Finance Act, 2015. As a corollary it has to be understood that it was not taxable prior to the amendment. We are hence of the opinion that the decision of the Honourable Supreme Court covers the two periods as agitated before this Court in the batch of Writ Appeals/Writ Petitions. W.A.No.281/2018 filed by the Revenue is dismissed and the other Writ Appeals\Writ Petitions are allowed.
9. The assessees claim refund of the amount already paid on demand made by the authorities. However, we would not make any positive orders on the same, since the assessees would have to file applications for refund on the basis of the judgment of the Honourable Supreme Court. The matter will have to be considered, especially, looking into whether the tax was collected from individual subscribers and if so collected, whether there could be any refund effected. If no refund could be effected to the actual payee then the State would retain such amounts. We merely state the principle and direct the individual applications should be considered by the Authorities based on the evidence as furnished by the assessees. The limitation, if any prescribed, for filing refund applications would arise from today.
