The Kadaplamattom Service Co-Operative Bank LTD.No.2633 vs. Union Of INDIA
Original PDF →Facts
The petitioners, primary credit societies, are challenging orders imposing service tax for their 'Group Deposit and Credit Scheme' (chit transactions) for the periods July 1, 2012, to March 31, 2013, and April 1, 2013, to March 31, 2014. The authorities alleged that these schemes constituted cash management and the commission received was liable to service tax under 'Banking and Other Financial Services'. The petitioners contended that chit transactions were not subject to service tax until 2015, making the imposition for the disputed periods unlawful. They relied on decisions from the Delhi High Court and Andhra Pradesh High Court.
Held
The Court held that for the period from July 2012 to June 2015, no service tax could be imposed on chit transactions. This conclusion was based on the binding decisions of the Supreme Court in Union of India and Others v. M/s.Margadarshi Chit Funds (P) Ltd. and this Court's own decision in All Kerala Association of Chit Funds and Others v. Union of India and Others. The Supreme Court, in its judgment, had explicitly stated that from July 1, 2012, to June 14, 2015, no service tax was payable on chit fund business. The Court further noted that the legislature amended the Finance Act, 1994, through the Finance Act, 2015, to include these transactions, implying they were not taxable prior to the amendment. Consequently, the imposition of service tax and consequential penalties on the petitioners for the period in question was deemed unsustainable. The Court allowed the writ petitions and set aside the impugned orders to the extent they imposed service tax, penalties, and cess.
Key Issues
1. Whether the 'Group Deposit and Credit Scheme' (chit transactions) conducted by the petitioners are liable to service tax for the period from July 1, 2012, to March 31, 2014, under the Finance Act, 1994? Petitioner's contention: The petitioners argued that their chit transactions were not liable to service tax until 2015, and therefore, imposing service tax for the period in question was without legal authority. They cited the Delhi High Court's decision in Delhi Chit Fund Association v. Union of India and Others and the Andhra Pradesh High Court's decision in A.P. Federation of Chit Funds v. Union of India. Revenue's contention: The respondents (Union of India and Assistant Commissioner) contended that the issue was covered by this Court's decision in All Kerala Association of Chit Funds and Others v. Union of India and Others, and the Supreme Court's decision in Union of India and Others v. M/s.Margadarshi Chit Funds (P) Ltd. They acknowledged that these decisions clarified that chit transactions became liable to service tax from 2015 onwards.
Sections Cited
Section 65B
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Heard together (3 matters)
Read from the judgment's own cause title. This page is filed under one of them.
Cause title — parties, addresses and appearances
JUDGMENT Petitioners in these writ petitions are primary credit societies registered under the provisions of the Kerala Co- operative Societies Act, 1969. The issue raised in these writ petitions is whether petitioners can be made liable for service tax for the conduct of chit transactions for the period from 01.07 2012 to 31.03.2013 and 01.04.2013 to 31.03.2014. 2. Pursuant to a show-cause notice alleging that the 'Group Deposit and Credit Scheme' (for short, 'the Scheme') of the co-operative banks are in the nature of cash management and the monetary commission received by the bank is liable to service tax under the head 'Banking and Other Financial Services', an order in original was issued as Ext.P1, imposing service tax upon the petitioners for the period from 01.07.2012 to 31.03.2013 and 01.04.2013 to 31.03.2014. 3. The main contention raised by the petitioners is that the Scheme conducted by them, which is essentially a chit
W.P.(C) No.1321, 1322 & 1390/17 transaction, was not liable to service tax until 2015 and that imposing service tax on the chit transactions conducted by the petitioners for the said period is without authority.
Petitioners also relied upon the decision of the Delhi High Court in Delhi Chit Fund Association v. Union of India and Others (W.P.(C) No.4512 of 2012) as well as the decision in A.P. Federation of Chit Funds v. Union of India [2009 (13) STR 350 (AP)].
A statement has been filed on behalf of respondents 2 and 3 in which it is stated that the issue involved in the writ petitions is covered by the decision in All Kerala Association of Chit Funds and Others v. Union of India and Others [(2018) 55 GSTR 389] and the decision of the Supreme Court in Union of India and Others v. M/s.Margadarshi Chit Funds (P) Ltd. Etc. [(2017) 13 SCC 806]. For better comprehension, the averments in paragraph 3, 4, 6 and 7 are extracted below:
“3. The issues raised in this writ petition was considered in detail by this Hon'ble Court in All Kerala Association of Chit Funds & Another v. Union of India & Others (W.A. No: 273 of 2013 against the judgement in W.P.(C) No: 32097/2007, dated 19.10.2012). In its judgment dated 14.03.2018 in the writ appeal a division bench of this Hon'ble Court held that chit transaction becomes liable to tax under the Finance Act, from 2015 onwards.
W.P.(C) No.1321, 1322 & 1390/17 4. …...............Thus, it is now clear that the activities of the petitioner have become liable to service tax under the Finance Act, 1994 from the time of the amendment carried out in sub-section 44 of Section 65B of the Finance Act, 2015. 6. The question as to whether the petitioner would be liable to pay service tax for the period between 01.07.2012 and 31.03.2014 was considered by this Hon'ble Court in Exhibit R-1 judgment. In Paragraph 5 of Exhibit R-1, this Hon'ble Court referring to the decision of the Hon'ble Apex Court in Union of India v. Margadarshi Chit Funds (P) Ltd., reported in AIR 2017 SC 3730, held, “The issue agitated by the Revenue is as to whether between 2012 and 2015 there could be tax levied on the chit transactions deeming it to be a service, which has not been excluded in the definition not included in the negative list. To answer this, we just have to notice para 21 of the decision of the Honourable Supreme Court, which is extracted below: "The aforesaid historical background would demonstrate that admittedly upto June 14, 2007, chit fund business was not exigible to service tax. Likewise, from July 01, 2012 to June 14, 2015, no service tax was payable
.........” Relying on the above observation of the Supreme Court, this Court went on to hold that: “Hence, the issue whether between 2012 and 2015, the tax can be levied on the chit transactions is beyond the scope of dispute. The Honourable Supreme Court having held in the negative, the issue is no longer res integra.”
Further, this Hon'ble Court went on to clarify that, “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. As a corollary, it has to be W.P.(C) No.1321, 1322 & 1390/17 understood that it was not taxable prior to the amendment.” In the light of this clarification, the service tax assessed by the 2nd respondent for chit transactions conducted by the petitioner society during the period between 01.07.2012 to 31.03.2014, becomes unsustainable.”
I have heard the contentions raised by Sri.Shaji Thomas, the learned counsel for the petitioners, Sri.S.Manu, learned Assistant Solicitor General of India for the first respondent as well as Smt.Thanuja Roshan George, learned counsel for respondents 2 and 3. 7. In view of the binding decisions of the Supreme Court in M/s.Margadarshi Chit Funds' case (supra) as well as the conclusion arrived at by this Court in All Kerala Association of Chit Funds' case (supra), the issue involved in these writ petitions need no elaborate discussion. Learned counsel for the respondents also concedes to the fact that the issue is wholly covered by the said decisions.
Thus, for the period from July 2012 to June, 2015, no service tax can be imposed on chit transactions. The period involved in these three writ petitions falls within the aforesaid years and hence petitioners cannot be mulcted with any liability for service tax.
Accordingly, following the decisions in W.P.(C) No.1321, 1322 & 1390/17 M/s.Margadarshi Chit Fund's case (supra) as well as the conclusion arrived at by this Court in All Kerala Association of Chit Funds' case (supra), the writ petitions are allowed and Ext.P1 order in original in these three writ petitions to the extent it imposes service tax and other penalty on the GDCS conducted by the petitioners and taxed under the heard “Banking and Other Financial Services” are set aside. The consequential penalties and other cess imposed are also set aside. BECHU KURIAN THOMAS JUDGE vps
W.P.(C) No.1321, 1322 & 1390/17
Appendix — schedule of exhibits
Reproduced from the public record of the Kerala High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.