2017 (7) TMI 224 - SC - Service Tax

Chit fund business not liable for service tax as it doesn't constitute cash or fund management services

Union of India And Ors. Versus M/s. Margadarshi Chit Funds (P) Ltd. Etc

The SC held that chit fund business does not constitute cash management or fund management services and therefore was not liable to service tax during the ... Nature of activity of 'chit fund business' - cash management / fund management - whether classifiable under the category of 'banking and other financial services' - 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 - It has been brought specifically within the definition of service by the aforesaid amendment which takes effect from June 15, 2015. Therefore, there is no dispute that w.e.f. June 15, 2015, service tax is payable on chit fund. Held that:- whenever a person is having idle cash or unrealised dues and wants the same to be utilised in a proper and fruitful manner, managing the said idle cash would amount to cash management. These are the services generally offered by the banking institutions to their clients. - Cash management, thus, deals with optimisation of cash as an asset and for this purpose various decisions are to be taken for proper management thereof. The cash management schemes are, thus, built around two goals: (a) to provide cash needed to meet the obligations and (b) to minimise the idle cash held by the business. When we understand the aforesaid concept of cash management, the answer we are seeking becomes obvious. Insofar as activity of chit fund is concerned, it does not amount to cash management. Once we have held that chit fund business is not cash management or a business of managing cash, no further discussion on this issue is even required. However, dehors the issue of cash management, we are of the view that activity of managing chit fund does not amount to management of any type of fund. Even as per the definition from dictionary relied upon by the Revenue, fund is an aggregation or deposit of resources from which supplies are or may be drawn for carrying on any work, or for maintaining existence. For our reasons given above, we affirm the conclusion in the impugned judgment of the Andhra Pradesh High Court [2008 (7) TMI 227 - ANDHRA PRADESH HIGH COURT]. We also hold that Kerala High Court [2013 (6) TMI 53 - KERALA HIGH COURT] has taken erroneous view and its judgment stands overruled. As a result, these appeals are dismissed. No service tax was payable on Chit Fund activity From June 15, 2007 to June 30, 2012 - Decided in favor of assessee. Issues Involved:1. Whether service tax is leviable on chit fund business from June 1, 2007, under the amended definition of 'banking and other financial services' in the Finance Act, 1994.2. Whether chit fund activity can be treated as 'cash management'.3. Whether chit fund can be treated as a form of 'fund management'.Issue-wise Detailed Analysis:1. Whether service tax is leviable on chit fund business from June 1, 2007, under the amended definition of 'banking and other financial services' in the Finance Act, 1994:The Supreme Court examined whether chit fund services fall under 'banking and other financial services' as per the amended definition effective from June 1, 2007. The amendment removed the exclusion of 'cash management' from 'asset management' under sub-clause (v) of sub-section (12) of Section 65 of the Finance Act, 1994. The Revenue argued that managing chit funds is akin to cash management, now included under 'asset management'. However, the Court found that mere deletion of the words 'but does not include cash management' does not suffice to cover chit fund business under 'asset management' unless it is shown that chit fund services constitute 'cash management'.2. Whether chit fund activity can be treated as 'cash management':The Court analyzed the nature of chit fund business as defined under the Chit Funds Act, 1982, and determined that it does not amount to 'cash management'. The Court referred to the definition and common understanding of 'cash management', which involves optimizing liquidity and managing surplus cash. Chit fund business, involving periodic contributions and auctions among subscribers, does not fit this definition. The Court noted that the Reserve Bank of India (RBI) had also opined that chit fund business does not fall within the meaning of 'cash management'. The Court concluded that chit fund activity does not constitute 'cash management' as understood in common parlance or in the banking field.3. Whether chit fund can be treated as a form of 'fund management':The Court held that chit fund business does not amount to 'fund management' either. Fund management typically involves managing a pool of resources for specific purposes, which is not the case with chit funds. The Court referred to dictionary definitions and concluded that chit funds do not fit within the scope of 'fund management' as understood in business parlance. The Court noted that even the Kerala High Court's judgment, which had accepted the Revenue's argument, did not properly address whether chit fund activity amounts to 'cash management' or 'fund management'. The Court affirmed the Andhra Pradesh High Court's judgment, holding that chit fund business is not covered by the amended definition of 'banking and other financial services'.Conclusion:The Supreme Court dismissed the appeals, affirming that chit fund business is not liable for service tax under the amended definition of 'banking and other financial services' in the Finance Act, 1994, for the period from June 1, 2007, to June 30, 2012. The Court overruled the Kerala High Court's judgment, which had taken an erroneous view. The Court emphasized the principle of strict interpretation of taxing statutes, resolving any ambiguity in favor of the taxpayer.