Telangana Federation Of Chit Funds vs. Union Of INDIA

WP/35165/2022HC TelanganaGSTCNR HBHC01051379202212 September 2022Bench: C.V. BHASKAR REDDY,UJJAL BHUYAN10 pages

For Petitioner: SRI VIVEK REDDY, SENIOR COUNSEL, FOR SRI K. PRATIK REDDYFor Respondent: SRI B. MUKHERJEE, COUNSEL FOR, ASSISTANT SOLICITOR GENERAL

AI SummaryRemanded

Facts

The petitioners, M/s. Neeladri Chit Fund Private Limited and Telangana Federation of Chit Funds, challenged an order-in-original dated July 29, 2022, passed by the Assistant Commissioner, Musheerabad GST Division. This order levied CGST and SGST on interest collected by chit fund companies on delayed or defaulted subscription payments. The demand included Rs. 10,18,181 for alleged non-payment of GST on interest from July 1, 2017, to March 31, 2021, Rs. 40,704 for recovery of Input Tax Credit (ITC) attributed to exempted supply, applicable interest, and a penalty of Rs. 10,18,181 plus Rs. 40,704. The petitioners argued that such interest is an actionable claim and exempt from GST. The respondents contended that a statutory appeal remedy was available.

Held

The High Court held that against the order-in-original dated July 29, 2022, there is a provision for filing an appeal under Section 107(1) of the CGST Act before the Joint Commissioner (Appeals), Hyderabad. The Court was of the view that all aspects of the contention raised by the petitioners, including the nature of the interest and its taxability, could be agitated before the appellate authority. Therefore, the Court found that the present case was not a fit case to bypass the statutory remedy of appeal and entertain the writ petitions. The Court directed the petitioners to file an appeal within thirty days and granted a stay on coercive steps by the respondents for the same period.

Key Issues

1. Whether the levy of CGST and SGST on interest collected by chit fund companies on delayed or defaulted subscription payments is legally sustainable, considering the nature of such interest as an actionable claim and its alleged exemption under relevant notifications and the CGST Act? (Section 15 of CGST Act, Notification No. 11/2017-CT (Rate), Notification No. 12/2017-Central Tax (Rate), Chit Funds Act, 1982, Article 19(1)(g) of the Constitution). Petitioner's Arguments: - The interest collected on delayed or defaulted payments is an actionable claim, which is exempt from GST. - The levy of GST on this interest is beyond the jurisdiction of the authorities. - Reliance was placed on the Supreme Court decision in Oriental Insurance Company Limited v. Lissal. Respondents' Arguments: - A statutory appeal remedy is available against the order-in-original. - The impugned order does not fall under any exceptions for invoking writ jurisdiction under Article 226 of the Constitution, despite the availability of appeal. - The order-in-original involved a detailed analysis of facts and law.

Sections Cited

Section 15, Section 73, Section 17(2), Section 50, Section 122, Section 107(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

[ 32ss ] HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) MONDAY, THE TWELFTH DAY OF SEPTEI\,4BER TWO THOUSAND AND TWENTY TWO WRIT PETITION NOS; 34941 AND 3s165 OF 2022 wP NO.34941 0F 2022: Between: AND 1. 2. ? 4. t\//s. Neeladri Chit Fund Private Limited , 1-2-59712, 1st Floor, Baraf Bagh Colony, Qomalguda, Hyderabad, Telangana -500029, Rep by its Managing Director Sri B Jangi Reddy' 66years ..pETrroNER Union of lndia, Ministry of Finance Department of Revenue, Rep by its Secretary (Revenue), North Block, New Delhi - 1 10001 . The Commissioner of Central Tax, Secunderabad GST Commissioner, GST Bhavan, Basheerbagh, Hyderabad. The Assistant Commissioner, Musheerabad GST Division, Secunderabad GST Commissionerate, Hyderabad, Telangana - 500004. Superintendent of Central Tax, Kavadiguda GST Range, Musheerabad GST Division, Secunderabad GST Commissionerate, Hydeiabad, Telangana - 500004. .-.RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue an appropriate Writ, Direction or Order, particularly one in the nature of Writ of Certiorari array calling for records and quashing a.lmpugned Order dated 29.07.2022 vide OC No.62t2022-DlN- 20220756YOO0O0111726 issued by the Respondent No. 4 as illegal, arbitrary, without Jurisdiction, and violative of Notification No. 1112017 CT (Rate) Dt 28.06.2017- Heading No. 9971 (Financial and related services) and 1212017 Central Tax (Rate) dated 28.06.2017, S. 1S of the Central Goods and Service Tax Act, 2017 (CGST Act) and a Chit Fund Act, 1982 (1982 Act) of Article 19(1)(g) and ultra vires proviso to Finance Act, 1994 PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE C. V. BHASKAR REDDY lA NO: 1 OF 2022 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to suspend the lmpugned Order dated 25.07.2022 vide OC No. 62l2022-DlN- 2022O756Y0000O111726 issued by the Respondent No. 4 during the pendency of this Writ Petition in the interest of justice Counsel for the Petitioner: SRI VIVEK REDDY, SENIOR COUNSEL FOR SRI K. PRATIK REDDY Counsel for Respondent No. 1: SRI B. MUKHERJEE, COUNSEL FOR ASSISTANT SOLICITOR GENERAL Counsel for Respondent Nos. 2 to 4: SRI B. NARASIMHA SARMA, SC FOR COMMERCIAL TAXES Between: Telangana Federation of Chit Funds, 408, 4th Floor, Swapnalok Complex, S.D Road, Secunderabad - 500003. Registration No. 299 ol 2015, Rep by its General secretary K Srinivas Reddy' ...pETrroNER AND 'l . Union of lndia, tvlinistry of Finance Department of Revenue, Rep by its Secretary (Revenue), North Block, New Delhi-1 10001 . 2. Office of Commissioner of Commercial Tax, C T Complex, Nampally, Hyderabad - 500044. State of Telangana. 3. The State of Telangana, Rep by its Principal Secretary, Department of Revenue (CT), Secretariat, Saidabad - Hyderabad, State of Telangana - 5ooo22' ..REsPoNDENrs Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ, Order or directioR more particularly one in the nature of a Writ of Mandamus a. declaring the action of the Respondents in seeking to levy GST on interest collected by the Petitioners members on delayed payment or defaulted payment of chit subscription amount since it is contrary to Notification no. 1212017-Cenlral Tax (Rate) dated 28.06.2017, Notification no. 1112017 CT (Rate) dated 28.06.2017, section 15 0f the central Goods And services Tax Act, 2017 and the provision of the Chit Funds Act, 1982. WP NO: 35165 OF 2022 lA NO: 1 OF 2022 Petjtion under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the Respondents to not to take any coercive steps against the members of the Petitioner during the pendency of the present petition Counsel for the Petitioner: SRI VIVEK REDDY, SENIOR COUNSEL FOR SRI K. PRATIK REDDY Counsel for Respondent No. 1:SRI B. MUKHERJEE, COUNSEL FOR ASSISTANT SOLICITOR GENERAL Counsel for Respondent Nos. 2 to 4: SRI B. NARASIMHA SARMA, SC FOR COMMERCIAL TAXES

The Court made the following: COMMON ORDER

TIIE IJON'BI,E TFIE CHTEF IUST]CE UI IAL BHUYAN AND 'f r II.r FI( )N'I]LE SRI IUS I CE C.V.BHASKAR ITEDDY \V.P.Nos.349-11 & 35165 of 2022 CO]VII\1O ORDEIT (Ptr the I lot'bh ttu Ohi4 Jurie Ujjal Bhqut) 'I'his ordcr will disposc of both W.P.Nos.34941 & 35165 of 2022. 2. \\'c have heard NIr. \/ivek Reddy, learned Senior Counsel lor thc petitioners; N,l r. B.i\{ukhcrjec, learned counscl rcl)rcsenriflg lcarnccl Assistant Soliciror (lcncral o[ India for respondcnt No.1; and Mr. B.Narsimha Sarma, learnccl counsel for rcspondcnts No.2 to 4 ir.r W.l).No.34941 of 2022 and respondents No.2 and 3 in W.P.No.35165 o12022

While \[.P.No.34941 of 2022 is frled challenging the order- in-orginal datcd 29.01 .2022 passed by respondent No.4- State levying Centrai Goods and Services Tax (CGST) and Stare Goods and Scnices 'Iax (SGSI) in tcrms of Noti[rcation Nos.11,u2017 - Cenual 1'ax (itatc) and 12/2017 -Centrai Tax (Rate) dated I 28.06.2017, \X1.P.No.35165 of 2022 has been filed questionirg such I

2 \ action ()[ thc rcsponclcnts to be contrary to the aforesaid

Peritioncr in W.P.No.34941 of 2022 is a company cngagcd irr carruing out chit fund business under the Chit Fund Act, 1982 and the 'I'clangana (-l'rit liund Rulcs,2008. 5. Shcrw cause noticc dated 04.05.2022 was issued to thc pcrifloner- Nccladri Chit Fund Private Limited allegrng conuavention o[ Sections 1,5Q) and 17Q) of the Central Goods and Services 1'ax Act, 2017 (for short 'the CGST Act'). Petitioner was asked to show cause as to why- (, ^tr amount o[ Rs.10,18,181.00 (CGST ot Rs.5,09,090.00 and SGST of equivalent amount) not paid during the period from 01.U7.2017 to 31.03.2021' should not be rea[sed in terms of the proviso to sub-section (1) o[ Section 73 of the CGST Act; (ii) an amount Rs.40,704'00 (CGST of Rs.20,325.00 with equivalent amount of SGST) being ITC attributed to the exempted supply should not be recovered under sub-scction (1) of Section 73 of the CGST Act for contravening the provisions of Section 17 Q) of the said Act; (iri) interest at \ N odficatior-r s.

-l apr)licablc rirrcs sl)()uld n()r be clclrandccl rn tcrnls oi Scction .50 oI thc (.( )S'1 .\ct; encl (rr.) pcr-rrlrr. should nor be inrposccl in tcrms of sub secuon (2) o[ Sccdon 122 oi the Act fcrr contravening the provision oi Sccrion 73 of rhc CGST'r\ct.

It appears rhat peritioner submitted reply datcd 11 06.2022 in response to thc shorv cause nodce and attcnded the personal hearing on 14.06.2022. ltespon<icnt No.4 considered the submissions rnadc by thc petirioner and thereafte r, aide the order dated 29.07.2022 confirmed rhe demand, paymenr of interest and imposition of penalry in the Following manner: i. I conlum the demand of Rs.10,1g,1g1/_ (Rupees Ten Lakhs Iiightecn 'I'housand One Hundred and Eighty One onlv) (C(]ST Rs.5,09,090/- and SGST Rs.5,09,090/) under thc pr<.rvisions of sub-section (1) ol Section 73 of the CGSTAct,2017; ij. I confrm the demand of Rs.40,704/- (R.upees Forty fhousand Seven Hundred and Four Only) (CGST Rg20,352/- and SGST Rs.20,353 /-) under provisions of sub-sect-ion (1) of Secdon 73 of the CGST Act, 2011 for contravening the ptovisions of Section 17(2). iii. I order payment of interest at applicable rates on rhe amount mendoned ar Sl.No.(i) under Section 50(3) of the IGS'f -{ct, 2017 /CGST Act, 2017lTGS^t Acr,20,t7. \

l 1 iv. I irnposc a penaln, of Rs.10,18,181/- (R.upccs Tcnl.akhs liightecn -l'housand One Hundred and Ijighty one orrly) GS'-f Rs.5,09,09()/- and SGSI'Rs.5,09,090/j and Rs.40,70.1/- (R.upccs Ijorru 'fhousand Seven Flundred and Four Onll) (CGSl'Rs.20,352l- and SGST Rs.20,352/ -) under thc provisions of sub-section (2) of the Scction 122 br contravening the ptovisions of Section 73 of the CGST Act,2077. Lealned counscl for the pctitioners submits that following tl-rc dccision t>f the Suprerne (-ourt ir-r Oriental Kuries Limited rcp. by its Chairman P.DJose v. Lissal, it is norv sertled rhar bv virtuc oI contractual obhgation, a dcbt is crcated on the subscriber. I[ thcrc is dcfault, a chit fund is cntidcd to recover the defaulted amount with intercst from the subscriber. Therefore, the lery of interest is an actionablc claim, which is exempt under the CGSf' Act. If that be thc posit-ion, lery of CGST and SGST demand on the interest would be beyond juri iction. \

Howevcr, learned counsel for respondents No.2 to 4 submits that there is a provision for appeal against the order-in-origrnal dated 29.01 .2022. 'I'hc irnpugned ordcr does nor come within any 1 1zots1 t9 Supreme court c.ses 732

c.rf the excepdons as carved out br. rhe courts ftrr inr,oking rvdt juri icdon ur-rcler ,\rticlc 22(r oi thc (-oosritution oI India nonr,ithstanding avail:rbilin oi rl'rc remedv o[ appeal as provided under thc statlr te.

Such subrnission is adopted bv learncd counsel for re spondcnt No.1 , rvho has also rcfcrre d to the ordcr-in-()riginal to contend that rcspondent No.4 hacl madc a detailcd analysrs oI facts and larv rvhilc passing the impugncd order.

10.

After hearrng icarncd counscl flor thc parties and on due consideration, rvc Frnd that against the order in-originai dated 29.07.2022, there is a provision for filing appe:al under Section 107(1) ol the CGSI' Act. $7e have becn inlormed that the appeilate authorify is the Joint Commissioner (Appeals), Flyderabad. 1,1,. Insofar thc contention raised by learned Senior Cour-rsel lot __- the petitioners, wc arc of the view that all these aspects can be agitated before the appellate authority. I I I I I I I I

12.

'l llcrcfori:. on a thol:ongh c()l-rsidcrlti()n ili all ilsPccts ()f thc 1ll2rttcl'. rvc at-c oi thc r-le\v lh:rt ptclsctrt is not a fit casc to bvpess thc statuton tctncdr- of appcal and clltcrtxifl thc lvrit pcriuull' ll. ( ()ns(,.1u(flll\- \\c r\'lcHll( lh( PCriu' )nLrl. lt) rht fc'rum oI appcals undct Section i07 (1) oi thc CGS I Act' 14. \X/c grant thirq, dar.s, timc tcl facLlitate the petitioncrs to filc such an appee) ltesponclcr-rts shall not take any cclcrcir e stcps against the petitioncrs on thc basis of thc in-rpugned otder in- original for tl'r e aforcsard pctiocl of tl.rirn davs' 15. \(ith the above dkections' rr'tit Pctidons are disposcd of' No COSTS closed As a sequel, misccllaneous petiuons' pending if any' stand -- ,J. ,//I ^,,,311-$'HA5?Etl I SECTION OFFICER To, 1 ip*"gr'gmn*' **,,:::: MBC PSl \

HIGH COURT DATED: 1ZtOgt2O22 -i HE S T.. l,: I C '( -) () {g 0[T m iL) t_ :'--. COMMON ORDER WP NOS: 34941AND 35165 OF 2022 DISPOSING OF THE WRIT PETITIONS WITHOUT COSTS C

Reproduced from the public record of the Telangana High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.