Chit transactions not liable for service tax pre-2015; refunds allowed based on Supreme Court ruling

The Supreme Court ruled that chit transactions were not liable to service tax under the Finance Act, 1994 for the pre-2012 period, overruling the decision of the Kerala High Court. Between 2012 to 2015, chit fund businesses were also not subject to service tax as the definition of services did not include chit transactions. Post-2015, an amendment excluded chit transactions from tax liability, clarifying that chit transactions were not taxable before this amendment. The Court directed authorities to consider refund applications based on the judgment, setting a limitation period for filing such claims.

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

Analysis:

1. Pre-2012 Period:
The issue arose when chit fund businesses were sought to be levied with service tax. Initially, the Andhra Pradesh High Court held that chit fund business would not be covered under the Finance Act, 1994. However, the Kerala High Court later differed and held in favor of the Revenue. The Supreme Court eventually negated the liability of chit transactions to service tax, specifically overruling the decision of the Kerala High Court.

2. Between 2012 to 2015:
In this period, the definition of services was revised, and a negative list was introduced under Section 65B(44) of the Finance Act, 1994. The contention was whether chit transactions could be taxed during this period. The Supreme Court clarified that chit fund businesses were not exigible to service tax during this period, as the definition of banking and financial services did not include chit transactions.

3. Post-2015 Period:
An amendment in 2015 specifically excluded chit transactions from the definition of transaction in money or actionable claim, making chit transactions liable to tax under the Finance Act, 1994 from 2015 onwards. The Revenue argued that this amendment was clarificatory and applicable from 2012 onwards, but the Court disagreed. The Court held that the amendment was not retrospective and that chit transactions were not taxable prior to the 2015 amendment.

4. Refund Claims:
The judgment did not make any positive orders on refund claims but directed the assessees to file applications based on the Supreme Court's decision. The authorities were instructed to consider refund applications based on evidence provided by the assessees, especially regarding whether the tax was collected from individual subscribers and if refunds could be made to them. The Court set the limitation for filing refund applications from the date of the judgment.

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