Writ maintainable against jurisdictional show cause notice; chit foreman interest from defaulting subscribers was not taxable under GST.
A writ petition challenging a show cause notice was held maintainable where the challenge was that the proceedings were wholly without jurisdiction, because an alternative remedy does not bar Article 226 review on a pure question of law. On the GST issue, interest collected by a chit foreman from defaulting subscribers was treated as arising from the contractual chit relationship and not as consideration for a taxable supply. The Court further noted that, even otherwise, the amount fell within the exemption for interest on deposits, loans or advances under Notification No. 12/2017-Central Tax (Rate). The impugned demand notice was therefore unsustainable.
Issues: (i) Whether a writ petition was maintainable to challenge a show cause notice on the ground that the proceedings were wholly without jurisdiction; (ii) whether interest collected by a chit foreman from defaulting subscribers could be subjected to GST or was covered by the nil-rate exemption for interest on deposits, loans or advances.
Issue (i): Whether a writ petition was maintainable to challenge a show cause notice on the ground that the proceedings were wholly without jurisdiction.
Analysis: The availability of an alternate adjudicatory mechanism does not bar writ interference where the impugned proceedings are alleged to be wholly without jurisdiction. On admitted facts, the challenge raised a pure question of law and did not require resolution of disputed facts. In such a case, the existence of a statutory remedy did not justify declining judicial review under Article 226 of the Constitution of India.
Conclusion: The writ petition was maintainable and the objection based on alternate remedy failed.
Issue (ii): Whether interest collected by a chit foreman from defaulting subscribers could be subjected to GST or was covered by the nil-rate exemption for interest on deposits, loans or advances.
Analysis: The rights of a foreman under the Chit Funds Act, 1982 and the Supreme Court's exposition of the relationship between a chit foreman and a subscriber showed that the transaction was contractual in nature and that, on default, the foreman was entitled to recover the consolidated amount of future subscriptions. The Court treated the interest levied on defaulting subscriptions as linked to that contractual relationship and not as consideration for a taxable supply of services. It further held that, even if the transaction were examined under GST, Notification No. 12/2017-Central Tax (Rate) exempted services by way of extending deposits, loans or advances where the consideration was represented by way of interest. The value-of-supply provision also supported the conclusion that only interest on delayed payment of consideration for supply is includible, which was absent on the facts found.
Conclusion: GST could not be levied on the interest collected from defaulting subscribers, and the impugned show cause notice was without jurisdiction.
Final Conclusion: The impugned demand notice could not be sustained in law, and the petitioner was entitled to relief on the substantive tax issue.
Ratio Decidendi: Interest collected by a chit foreman from defaulting subscribers is not taxable as consideration for supply where it does not arise from a supply of goods or services and falls within the statutory exemption for interest on deposits, loans or advances.
TaxTMI 
AI Drafter ✕
TaxTMI 
