TMI Blog2013 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... Public Interest” is a matter of policy and Courts would not bind the Government to its policy decisions for all times to come, irrespective of the satisfaction of the Government, that a change in the policy was necessary in “Public Interest”. As observed, Courts do not interfere with the fiscal policy where the Government acts in “Public Interest”. The scope of interference especially with regard to taxing laws has been explained by another Constitution Bench of the Apex Court in Federation of Hotel & Restaurant v. Union of India [1989 (5) TMI 50 - SUPREME Court] more particularly in paragraphs 46, 47 and 48. In Karnataka Bank Ltd. v. Stale of Andhra Pradesh and Others [2008 (1) TMI 605 - SUPREME COURT OF INDIA], it has been held that, any interpretation which renders a legislation unconstitutional, is to be avoided. It difficult to agree with the proposition mooted by the petitioners in these writ petitions and most respectfully disagrees with the view expressed by the Division Bench of the High Court of Andhra Pradesh [2008 (7) TMI 227 - HIGH COURT ANDHRA PRADESH]. This Court holds that the writ petitions are devoid of any merit - Decided against the assessee. - W.P. (C) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not by way of Circular issued for the first time, invoking the power under Section 37B of the Central Excise Act, 1984 read with Section 83 of the Finance Act, 1994. 3. WP (C) No. 32097/2007 has been filed by All Kerala Association of Chit Funds, which is stated as the State unit of All India Association of Chit Funds, New Delhi as the first petitioner and by one of its members as the second petitioner. The other writ petitions have been filed by similarly situated associations or members. Most of the chitty establishments as above stand registered outside the State of Kerala; particularly in Jammu Tawi or Faridabad, though there is some exception like WP (C) No. 8711/2009, which has been filed by the KSFE, a State-owned undertaking and WP (C) No. 1703/2011, by the petitioner who has got registration within the State of Kerala at Aleppey. All the petitioners running the chitty business are registered under the relevant provisions of the Indian Companies Act, 1956. 4. There is no much factual controversy and the dispute is only with regard to the liability to take registration for the purpose of Service Tax and as to the liability, if any to remit the tax as envisaged und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced for the convenience of reference as Ext. P8 in WP (C) No. 1703/2011. 6. The respondents have filed counter-affidavit in most of the cases seeking to sustain the Circular and the steps taken to impose the Service Tax. It has been asserted that Ext. P2 Circular (in WP (C) No. 2822/2008) is only clarificatory in nature, with regard to the effect of the amendment brought about in the year 2007, to Section 65(12)(a)(v) of the Finance Act, 1994. It is not on the basis of Ext. P2 Circular (in WP (C) No. 2822/2008) that the tax liability was sought to be imposed, but, by virtue of the amendment of the statutory provision. It is stated that tax can be imposed either by incorporation or by deletion of a provision in the existing Statute, to the requisite extent, which in fact has been brought about as per the amendment in 2007. The effect of such amendment has alone been explained in the Circular and as such, the contention of the petitioners that the liability to pay tax has been brought about by virtue of the Circular is thoroughly wrong and misconceived. It is also stated that the very Finance Act, 1994, vide Section 65(45) stipulates that financial institution has the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision cited supra, submits the learned counsel. The true nature of the transaction is sought to be highlighted with reference to Shriram Chits and Investment (P) Ltd. v. Union of India and Others - 1993 KHC 818 = 1993 Supp (4) SCC 226 = AIR 1993 SC 2063. The learned counsel submits that Ext. P2 Circular (in WP (C) No. 2822/2008) has been issued invoking the power under Section 37B of the Central Excise Act, which cannot by itself impose a new tax liability upon anybody and the said power to issue instructions to the subordinate officers cannot override the provisions of the Act so as to add or delete something into or from the same. The learned counsel pointed out that the Chit Funds Act, 1982 (Central Statute) was made applicable to the State of Kerala only with effect from 30-4-2012 and Section 85 of the Act saves all the existing Chitties, while Section 90 speaks about repeal and saving. The law declared by the Apex Court in Workmen of National and Grindlays Bank Ltd. v. The National and Grindlays Bank Ltd. - 1976 KHC 700 = AIR 1976 SC 611 = 1976 (1) SCC 925 = 1976 SCC (L S) 138 = 1976 (32) FLR 178 = 1976 (1) LLJ 463 = 1976 Lab IC 462. (paragraph 15) is also sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India and Others - 1981 KHC 729 = 1981 (4) SCC 675 = AIR 1981 SC 2138 = 1982 (133) ITR 239, Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. and Others - 2007 (2) KHC 384 = (2007) 6 SCC 236 = JT 2007 (5) SC 201 = ILR 2007 (2) Ker. 411 = 2007 (3) KLT 302 = AIR 2007 SC 1584, Karnataka Bank Ltd. v. State of Andhra Pradesh and Others - 2008 KHC 4140 = (2008) 2 SCC 254 = 2008 (1) SCALE 660, Government of Andhra Pradesh and Others v. P. Laxmi Devi - 2008 KHC 6136 = (2008) 4 SCC 720 = 2008 (3) SCALE 45 = 2008 (2) KLT SN 13 = AIR 2008 SC 1640 and Transport and Dock Workers Union and Others v. Mumbai Port Trust and Another - 2010 KHC 488S = 2011 (2) SCC 575 = 2010 (4) KLT SN 98, concluding that even in a case involving challenge of a statutory provision, if two views are possible, the one sustaining the provision has to be adopted, giving effect to the Statute and that the Court should be slow in setting aside the law enacted by the Legislature consisting of the representatives elected by the people. 10. In reply to the above submission, the learned counsel for the petitioners submits that, the necessity of funds/funds management finds a place in Commissioner of Income Tax (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as above is for a specified number of instalments, which enables the trustee/foreman to have his share as well, by way of commission. By the passage of time, the easy mobilisation of funds to meet the contingency by way of Chits came to be widely accepted and adopted throughout the country and various States enacted Statutes to control/regulate the affairs of the Chits. It was to bring about a uniformity in the deals and to save the beneficiaries/subscribers concerned to the requisite extent, that the Central Government came forward with the Chit Funds Act, 1982 legislating the same, invoking the power under Entry No. 7 of list III (concurrent list) of the Seventh Schedule to the Constitution of India. Challenge against the validity of the said enactment was the subject-matter of consideration before the Apex Court in Shriram Chits and Investments (P) Ltd. v. Union of India and Others - 1993 KHC 818 = AIR 1993 SC 2063 = 1993 Supp (4) SCC 226. The decision rendered by the Full Bench (of 5 Judges) of this Court in Janardhana Mallan v. Gangadharan - 1983 KHC 46 = AIR 1983 Ker. 178 =1983 KLT 197 = 1983 KLJ 722 = ILR 1983 (2) Ker. 33 =1983 KLN 161, overruling the earlier decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement brings about repugnancy or inconsistency or envisaged in Article 254(1) of the Constitution? (ii) The effect in law of a repeal. (iii) Inconsistencies in the provisions of the Kerala Chitties Act, 1975 which shall be the Central Chit Funds Act, 1982. After exhaustive analysis of the relevant provisions and comparative analysis of the conflicting provisions between the State Act and the Central Act, the Apex Court answered the reference as reported in State of Kerala v. Mar Appraem Kuri Co. Ltd. - 2012 KHC4282 = 2012 (2) KLT 639 = 2012 (2) KHC SN 35 = ILR 2012 (2) Ker. 487 = 2012 (2) KLJ 596 = (2012) 7 SCC 106 = AIR 2012 SC 2375 summing up the conclusion in paragraph 28, which reads as follows : 28. To sum up, our conclusions are as follows : (i) On timing, we holding that, repugnancy arises on the making and not commencement of the law, as correctly held in the judgment of this Court in Pt. Rishikesh and Another v. Salma Begum (Smt.), 1995 (4) SCC 718. (ii) Applying the above test, we hold that, on the enactment of the Central Chit Funds Act, 1982, on 19-8-1982, which covered the entire field of chits under Entry 7 of List III of the Constitution, the Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a non-banking financial company or any other body corporate or commercial concern, namely: (i) (ii) (iii) (iv) (v) asset management including portfolio management, all forms of fund management pension fund management, custodial, depository and trust services; Section 65(105) taxable services means any service provided (zm) to a customer, by a banking company or a financial institution including a non- banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services; 14. By virtue of the nature of terminology used under Section 65(12)(a)(v), a doubt was felt whether the Chit funds establishments could be brought within the tax net or not. Section 65(45) of the Finance Act, 1994 assigns the financial institution , the same meaning as defined under Section 45(1) of the RBI Act. Section 45(l) of the RBI Act at Clause (c)(v) reads as follows : (c) financial institution means any non-banking institution which carries on as its business or part of its business any of the following activities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Excise Officers. - The Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board : Provided that no such orders, instructions or directions shall be issued- (a) so as to require any Central Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions. 17. At the time of introduction of Service Tax in the year 1994, tax was sought to be realised only in respect of three taxable services. The tax net was widened in the course of time, bringing as many as 100 services as on the date of issuance of Ext. P2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KHC 341 = (1994) 4 SCC 375 = 1994 (2) KLT 303 = AIR 1994 SC 2416, making in clear that if the liability is not actually excisable, the same cannot be sought to be included by way of Circular. The said decision was followed by a Single Bench of the Calcutta High Court as per the decision in Birla Jute and Industries Ltd. v. Assistant Collector of C.EX. - 1992 (57) E.L.T. 674. Almost similar is the observation of the Division Bench of the Karnataka High Court as to the scope of Circulars in West Coast Paper Mills, Dandeli v. Superintendent of Central Excise, Dandeli and Others - 1984 (16) E.L.T. 91. There cannot be any further controversy in this regard and the position has been reiterated by the Supreme Court in (1994) 4 SCC 375 (cited supra) as well. This being the position, this Court accepts the contention of the petitioners that no tax liability can be imposed for the first time, as per Ext. P2 (WP (C) No. 2822/2008) Circular, if it does not derive the source from the taxing Statute. 19. Contention of the respondents seems that Ext. P2 (WP (C) No. 2822/2008) Circular by its own does not bring about any tax liability and that the liability actually flows down from the Statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the relevant statutory provisions must be referred to and they will prevail, no doubt could have arisen in the minds of anybody, as if the Circular had attempted to fix the tax liability for the first time without any regard to the statutory provisions. This Court finds that the Clause 8 in Ext. P2 (WP (C) No. 2822/2008) Circular was presumably not specifically brought to the notice or highlighted before the Division Bench of Andhra Pradesh High Court while rendering the decision in A.P. Federation Chit Funds v. Union of India - 2009 (13) S.T.R. 350 (A.P.) as it is not referred to or discussed therein. 21. Then, the question is whether there is anything in the statutory provision, so as to sustain the taxable instance. There is a contention for the petitioners that, merely by deletion of some words from the existing provision, no taxable instance can be brought about; which on the other hand has to be effected by a positive incorporation. This Court finds it difficult to accept the said proposition. As made clear by the Apex Court in the decision reported in Kasinka Trading and Another v. Union of India and Another-1995 KHC 746 = (1995) 1 SCC 274 = AIR 1995 SC 874, power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id circumstance, that Ext. P1 (in WP (C) No. 32097/2007) Circular was issued in the year 2007 by the Board (C.B.E. C.), letting all known, that Chitty transaction did not attract any Service Tax, as cash management was specifically excluded under Section 65(12)(a)(v) of the Finance Act, 1994. 24. Admittedly, the words but does not include cash management came to be deleted from Section 65(12)(a)(v) as per the amendment brought about in the year 2007, whereupon the sweep of the provision got widened and all forms of fund management came to be reckoned for the purpose of taxation. In other words, when the unamended provision provided to impose tax in respect of service involving all forms of fund management, exemption was given to services involving, cash management , which rescued the petitioners earlier. But as per the amended provision, deleting the words but does not include cash management , the term all forms of fund management came to be revitalized with full vigour and wider reach. This being the position, the legal provision, part of which was dormant because of the exclusion under Section 65(12)(a)(v), came to be live and potent pursuant to deletion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the procuration and disbursement of the fund, nature of liability to effect future installments, rights and liberties of the Foreman to get commission for the service rendered, the dividend distributable among the subscribers, (based on the discount facilitated on prizing the Chits) etc., have been discussed in detail by the Apex Court in M/s. Shriram Chits Investments Pvt Ltd. v. Union of India and Others - 1993 KHC 818 = AIR 1993 SC 2063 =1993 Supp (4) SCC 226 pointing out that, it is not a money lending business and that there is no debtor-creditor relationship between the Subscriber and the Foreman. Collection of subscriptions from the different subscribers to the common fund, facilitating disbursement of the prized amount and distribution of the dividend after realizing the commission, forms an essential feature of management of the concerned fund. When it is not a loan, but a fund procured in the manner as specified therein to be dealt with, catering to the need of the Subscriber, it essentially is part of management of the fund, though the fund is generated and disbursed without much time gap. This however, cannot tilt the balance in any manner, as to the nature of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N. Venkataramana, 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 Finance Act, 2007, the nature of business done by the petitioner cannot be roped in, as long as the levy is not made specifically in respect of such transactions in clear words. Therefore, even otherwise it has been contended that in view of the nature of chit transaction as already been explained to by the Apex Court, it cannot come within the parameters of any of the exemptions under the Finance Act as exists. Even otherwise, it is stated that the respondents herein cannot take upon themselves by imposing of levy proposals on totally different class by mere issuance of circular which itself is without any jurisdiction. 6. Shri Vedula Venkataramana, learned counsel appearing on behalf of petitioners has adopted broadly the submissions made by Shri. N. Venkataramana, Senior Counsel. However, he sought to restrict his submissions as regards the validity of the circular rather than going beyond to hold that the nature of chit transactions would fall within asset management on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictly, as made clear by the Apex Court. But when all sorts of fund management were sought to be taxed, giving exception only to cash management under the unamended provision and when it came to be excluded after the amendment to Section 65(12)(a)(v) in the year 2007, this Court finds that, each and every instance of fund management need not be separately mentioned in the provision, to attract the tax liability. Even as per the unamended Statute, when the exception was only to a limited extent i.e., in respect of cash management , the deletion of the exception has revived all forms of fund management with full vigour and vitality, which cannot be watered down. To put in other words, the term all forms of fund management forms the genus, of which, cash management is one of the species. The exception given to the specie (cash management) is taken away by deleting the same in the year 2007, after which, all forms of fund management become taxable. It has to be noted that, there is absolutely no challenge against the statutory provision i.e., in respect of the amendment brought about in the year 2007 and this being the position, the tax liability stands governed, not by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a provision is to be examined and interpreted and on such other incidental aspects are not necessary, to be considered or dealt with. However, having cited the above decisions, it is worthwhile to have a reference to some of them as well in a different context. It has been made clear by the Apex Court in paragraph 21 of the judgment reported in (1995) 1 SCC 274 - 1995 KHC 746 = AIR 1995 SC 874 (cited supra) that the power to exempt includes the power to modify or withdraw the, same . It has been further observed in paragraph 23, that withdrawal of exemption in Public Interest is a matter of policy and Courts would not bind the Government to its policy decisions for all times to come, irrespective of the satisfaction of the Government, that a change in the policy was necessary in Public Interest . As observed, Courts do not interfere with the fiscal policy where the Government acts in Public Interest . 32. Observations of the Apex Court in The Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madura - 1975 KHC 587 = (1975) 2 SCC 454 = AIR 1975 SC 2016 = 1975 (101) ITR 24 = 1976 (1) MLJ 1 (SC) with regard to the power and competence to legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und from the different subscribers, putting it together, sharing the dividend, disbursement of the amount to the prized subscriber after realising the commission payable to the Foreman etc., are only an incidental activity . If it is an incidental activity , what else is the main activity is not disclosed. The role of the Foreman has already been explained by the Apex Court in AIR 1993 SC 2063 - 1993 KHC 818 = 1993 Supp (4) SCC 226 (cited supra) and the activity cannot but be declared as a service in the said circumstance, more so, in the light of the definition of the terms, Banking and Financial Institutions under Section 65(12)(a)(v), Taxable Service under 65(105)(ZM) and the reference made to Section 45- I, of the RBI Act under Section 65(45) of the Finance Act, 1994, defining the term Financial Institution as inclusive of Chitty business as well, under sub-clause (c)(v). 34. In Ram Krishna Dalmia v. Justice S.R. Tendolkar - 1958 KHC 459 = AIR 1958 SC 538 = 1959 SCR 279 = 1959 (1) MLJ (SC) 67 = 61 Bom LR 192, a Constitution Bench of the Supreme Court has held in paragraph 11 that the consistent view taken by the Court is that, a law may be constitutional, even tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been a clear transgression of the Constitutional principles. Another rule of equal importance, as made clear by the Court is that, laws relating the economic activities should be viewed with greater latitude than laws touching civil rights; such as freedom of speech, religion etc. (paragraph 8). Quoting Holmes J., the Apex Court observed that the Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket-formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. 39. The scope of interference especially with regard to taxing laws has been explained by another Constitution Bench of the Apex Court in Federation of Hotel Restaurant v. Union of India - 1989 KHC 957 = (1989) 3 SCC 634 = AIR 1990 SC 1637 = 1989 (178) ITR 97 = 1989 (74) STC 102 more particularly in paragraphs 46, 47 and 48. In Karnataka Bank Ltd. v. Stale of Andhra Pradesh and Others - 2008 KHC 4140 = (2008) 2 SCC 254 = 2008 (1) S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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