Service Tax not payable on Chit Transactions During 2012 to 2015: Kerala HC [Read Judgment]

Chit Transaction - Service Tax - Taxscan

In the case of All Kerala Association of Chit Funds & Anr. Vs. Union of India & Ors., the Kerala High Court relying on the decision of the Supreme Court held that chit transactions between the years 2012 and 2015 is not liable to service tax as arising from the Finance Act, 1994.

When the Government was about to bring the Chit Fund Business under the ambit of service tax, writ petitions were filed before the Andhra Pradesh High Court in which the Court held that the chit fund business would not be covered under the Finance Act, 1994. Special leave petitions filed before the Supreme Court was converted into civil Appeals. While they were pending, some writ petitions were filed before the Kerala High Court which differed from the decision of the Andhra High Court and held that chit fund business would be covered under the Finance Act, 1994. Meanwhile, the Supreme Court confirmed the decision of the Andhra High Court and specifically overruled Kerala High Court decision. The revenue preferred an appeal on the ground that the Supreme Court has not considered the amendment of 2012.

The 2012 amendment of the Finance Act,1994 defined ‘services’ and a negative list, which would not be taxable. From the ambit of service, ‘a transaction in money or actionable claim’ was excluded. The issue agitated by the Revenue is as to whether between 2012 and 2015 there could be the tax levied on the chit transactions deeming it to be a service, which has not been excluded in the definition nor included in the negative list.

The bench comprising of Justice K. Vinod Chandran and Justice Ashok Menon observed that the Supreme Court had already in its judgement stated that no service tax was payable from July 1st, 2012 to June 14th 2015. According to them the issue was no longer res Integra.

When the revenue contended that the 2015 amendment made Chit Transactions liable to tax under Finance Act,1994 and that the said amendment is merely clarificatory in nature and would be applicable from 2012 onwards, the court found it unable to agree when the Supreme Court has clearly held in CIT v. Vatika Township Pvt. Ltd. that a taxation statute should be strictly construed and if any ambiguity be found to exist, it should be resolved in favour of the citizen.

Hence, the amendment made in 2015 cannot be said to be clarificatory and there can be no retrospective operation given to such amendment. The legislature felt the need for inclusion of the transactions within the fold of service and hence amended the Finance Act, 1994 by Finance Act, 2015.” observed the Bench.

Upon the issue of refund claimed by the assessee, the court found it prudent to not make any positive orders as the assessees would have to file applications for the refund on the basis of the judgment of the Supreme Court.

“The matter will have to be considered, especially, looking into whether the tax was collected from individual subscribers and if so collected, whether there could be any refund effected. If no refund could be effected to the actual payee, then the State would retain such amounts. We merely state the principle and direct the individual applications should be considered by the Authorities based on the evidence as furnished by the assessees.” said the Bench.

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