Scope of service tax cannot be extended by merely issuance of a clarification / circular - Chit Fund is not subject to service tax

 Whether Chit Fund Services are subject to service tax under Banking and Financial Services (Section 65 (12) read with section 65 (105) (zm) of the Finance Act, 1994)?

Can the board or government is empowered to extend the scope of service tax by issuance of circular (circular No. 96/7/2007-ST (Circular No. 034-04) dated 23.8.2007)

After discussing the issue in detail alongwith the RBI provisions the honorable high court has held that:

-          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.

-           Even the arguments to rope in the definition of the financial institution under the RBI Act could not come to the rescue of the respondents herein to extend the levy of service tax on the chit business.

-           However, it is to be noticed that the said provision has been in vogue all along, and it is not the case of the respondents that by borrowing the same, the service tax could have been levied even much earlier irrespective of the aforesaid Finance Act as mentioned above, which has undergone changes.

-          Therefore, it is not open for the respondents herein merely because a change is brought in the Finance Act and therefore the provisions of the RBI Act would step in cannot be a sound basis.

-          If at all, the respondents wanted to extend the levy to such business, it would have been easier for them to specifically include the same rather than in trying to borrow from different other provisions, which cannot be extended.

-          Therefore, it is quite amply clear that in the absence of any such inclusive definition available in the statute, it cannot be said that the petitioners would fall within the mischief of the aforesaid provision.

-          The entire action, therefore 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.

(For full text of judgment - visit 2008 -TMI - 31067 - HIGH COURT OF ANDHRA PRADESH)