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TMI Blog2008 (7) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings No. HAST 141/2007 dated 18.12.2007 issued by the second respondent 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. In support, the petitioners referred to various provisions of the said Act. Under Chapter V of the Finance Act, 1994, the first respondent for the first time, imposed the levy of service tax on rendition of service by the provider of service to the receiver. Sub Clause 12 of section 65 of the said Act, defines "Banking and other financial services" and sub clause 5 thereof refers to "asset management", it is stated that it does not include the cash management. It is pointed out that the second respondent herein as per circular dated 15.3.2002 stated that the Reserve Bank of India advised that the business of chit funds is to mobilize cash from the subscribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement and asset management. Further, it has been pointed out that as per Section 41 (I) of the Reserve Bank of India Act, 1934, chit funds are categorized as Financial Institutions and therefore sub clause 12 of Section 65 of the Finance Act, 2007 by deletion of expression 'cash management' attracts the levy of service on chit fund transactions. It is also pointed out that the Reserve Bank of India clarified in this regard and it is only on the guidelines and advise of the Reserve Bank, the impugned circulars have been issued and therefore there is absolutely no illegality in the entire action of the respondents. Further it is pointed out that the petitioners have an alternative remedy of appeal and adjudication at various stages to raise these objections and without availing the same, the invocation of extraordinary jurisdiction of this Court under Article 226 of the Constitution of India is wholly unsustainable, hence these writ petitioners are liable to be dismissed. Sri N Venkata Ramana, learned Senior counsel appearing on behalf of the petitioner mainly contended that merely because of deletion of certain expressions under the aforesaid sub clause (12) of Section 65 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke, instead of referring to all the provisions under the Chit Fund Act, 1982 it would suffice to refer to the definition of Chit under Section 2 (b) thereof, which reads as under; "2(b) Chit means a transaction whether called chit, chit fund, chitty, kury or by any other name or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical insalments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount." The nature of chit transaction has come up for consideration before the Apex Court in M/s SHRIRAM CHITS & INVESTMENT (P) LTD. V. UNION OF INDIA , wherein, it has been held as under; "The provision in S.6 relating to entering into Chit agreement clearly shows that a contract has to be entered into between the subscribers and the foreman and in view of the definitions provided in Sections 2 (b), 2 (c), 2(d), 2 (e) and 2 (j) enforceable contract comes into existence and the Act p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices, but does not include cash management; vi) Advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and vii) provision and transfer of information and date processing; b) foreign exchange broking provided by a foreign exchange broker other than those covered under subclause (a). It has been the agreement of the respondents that since the nature of chit transactions falls within the expression of cash management and the sub-clause V of the above provision excludes the same. Therefore, there was no levy of service tax on the said transactions. The aforesaid provision had undergone a change by way of an amendment under the Finance Act 2007, with effect from 1.6.2007, in the sub clause V, by which, the expression 'but does not include cash management' was omitted. Therefore, it is the case of the respondents that chit transaction and business of the petitioners falls within the mischief of 'cash management', hence it attracts levy of service tax. Hence, the impugned circular dated 23.8.2007 seeks the petitioners to adhere to the format as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NION OF INDIA (Supra) , 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 respondents placed reliance on the online dictionary meaning in support of their contention that the nature of chit transactions falls within the meaning of 'cash management, which are as under: "http://ardictionary.com/Fund/6980 FUND: Definition: an aggregation or deposit of resources from which supplies are or may be drawn for carrying on any work, or for maintaining existence. FUND: Definition: A stock or capital; a sum of money appropriated as the foundation of some commercial or other operation undertaken with a view to profit; that reserve by means of which expenses and credit are supported; as, the fund of a bank, commercial house, manufacturing corporation, etc. http://www ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude 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. Even the arguments to rope in the definition of the financial institution under the RBI Act, which has been mentioned above, could not come to the rescue of the respondents herein to extend the levy of service tax on the chit business, since, as per the said definition such business is included. 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 can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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