2018 (4) TMI 73 - HC - Service Tax

Liability to service tax - chit transactions - scope of definition of the service prior to 01-06-2007 - 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? - Held that - the issue whether between 2012 and 2015, the tax can be levied on the chit transactions is beyond the scope of dispute - 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. 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. Petition allowed.

Summary

Issues:
Liability of chit transactions to service tax under the Finance Act, 1994 during different periods - pre-2012, between 2012 to 2015, and post-2015.

Analysis:

Issue 1: Pre-2012 Period
The chit transactions were not assessed until 01-06-2007 when an amendment was made to Section 65(12)(v) of the Finance Act, 1994. The Andhra Pradesh High Court initially held that chit transactions would not be taxable after the amendment. The Supreme Court affirmed this view, stating that chit transactions do not fall under the definition of cash management. Therefore, chit transactions were not subject to service tax before 2012.

Issue 2: Between 2012 to 2015
From 2012, the definition of services changed, and chit transactions were not explicitly included in the negative list under Section 65B(44) of the Finance Act. However, the Supreme Court clarified that between 2012 and 2015, no service tax was payable on chit transactions. The court emphasized that the issue was no longer open for debate based on its previous rulings.

Issue 3: Post-2015 Period
In 2015, an amendment was made to the Finance Act, 1994, specifically excluding transactions by a foreman of a chit fund from the definition of transaction in money or actionable claim. This change made chit transactions liable to tax under the Finance Act from 2015 onwards. The court rejected the argument that this amendment had retrospective effect, emphasizing that it was a legislative decision to include chit transactions within the scope of taxable services.

Conclusion:
The court dismissed the appeal by the Revenue and allowed other writ petitions, indicating that chit transactions were not taxable before 2012, were not subject to tax between 2012 and 2015 based on Supreme Court rulings, and became taxable from 2015 onwards due to the legislative amendment. The court directed individual refund applications to be considered by the authorities based on evidence provided by the assessees, with any refund limitations starting from the date of the judgment.