ORDER
B. Prakash Rao, J.
1. Since all these writ petitions involve common questions, they are being taken up together for disposal.
2. The petitioners herein include many of the chit fund companies and a registered Federation of Chit Funds, of which those companies are members. In the writ petitions, the petitioners sought for a mandamus and assailing the correctness of Circular No. 96/7/2007-ST (Circular No. 034-04) dated 23-8-2007 and proceedings No. HAST 141/2007, dated 18-12-2007 issued by the second respondent as being violative of Articles 14, 19(1)(g) and 265 of the Constitution of India and Section 65(12) read with Section 65(105)(zm) of the Finance Act, 1994 and to set aside the same. The case of the petitioners is that they are doing business in chit funds, the transactions of which are clearly covered by the provisions of the A.P. Chit Funds Act, 1971 and the Rules made thereunder. According to them, very nature of transaction stands quite apart. In support, the petitioners referred to various provisions of the said Act.
3. Under Chapter V of the Finance Act, 1994, the first respondent for the first time, imposed the levy of service tax on rendition of service by the provider of service to the receiver. Sub-clause (12) of Section 65 of the said Act, defines 'Banking and other financial services' and Sub-clause (5) thereof refers to 'asset management', it is stated that it does not include the cash management. It is pointed out that the second respondent herein as per circular dated 15-3-2002 stated that the Reserve Bank of India advised that the business of chit funds is to mobilize cash from the subscribers and therefore falls under cash management. Under the Finance Act, 2007, which came into effect from 1-6-2007, the Sub-clause (5) of Section 65(12) of Finance Act, 1994 was amended with the deletion of the expression 'it does not include cash management'. Accordingly, the second respondent issued the impugned circular dated 23rd August, 2007 classifying the chit funds into two categories i.e., simple chit funds and business chit funds and calling upon the petitioners to pay service tax.
In reply, the petitioners made it clear that the very assumption by the respondents to treat the chit fund business to fall within the ambit of asset management is not correct nor valid in law and further pointed out that there is scuttle (sic) (subtle) difference between the banking and financial services as defined under the Act with that of the Chit transactions, therefore, no liability can be fastened on them. Further it is pointed out that the respondents herein cannot levy a tax for the first time on a totally new arena by issuance of a circular. As long as the Finance Act is not properly modified or amended to bring within its fold the chit transactions, the demand made by the respondents is totally unsustainable. Further, it is pointed out that even when the Budget proposals were made for 2007-08, the Hon'ble Finance Minister did not give any indication that the cash management would include the chit fund business and therefore it is neither the policy decision nor the law as enunciated at the relevant point of time to bring the chit fund business within the ambit of the asset management and thus the entire levy and demand is totally illegal, unconstitutional and as such liable to be set aside. Hence, the writ petition.
4. In the counter affidavit filed on behalf of the respondents, which has been sworn in by Dr. I. Marianna, Assistant Commissioner, Customs and Central Excise, Hyderabad-II Commissionerate, Hyderabad, apart from reiterating the main stand on the expression 'cash management' in the normal parlance and as per the various dictionaries referred to including Vrnimmen Finance Dictionary, the Farlex Dictionary and Investorwords.com, the chit transaction squarely falls within its ambit and therefore it was contended that even culling out from the definition of the chit under the Chit Funds Act, 1982, there being an element of finance involved, it attracts cash management and asset management. Further, it has been pointed out that as per Section 41(1) of the Reserve Bank of India Act, 1934, chit funds are categorized as Financial Institutions and therefore Sub-clause 12 of Section 65 of the Finance Act, 2007 by deletion of expression 'cash management' attracts the levy of service on chit fund transactions. It is also pointed out that the Reserve Bank of India clarified in this regard and it is only on the guidelines and advise of the Reserve Bank, the impugned circulars have been issued and therefore there is absolutely no illegality in the entire action of the respondents. Further it is pointed out that the petitioners have an alternative remedy of appeal and adjudication at various stages to raise these objections and without availing the same, the invocation of extraordinary jurisdiction of this Court under Article 226 of the Constitution of India is wholly unsustainable, hence these writ petitioners are liable to be dismissed.
5. Shri 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 the deletion of expression under the later amended Finance Act. He further contended that by the impugned action, the respondents are only trying to enlarge the scope of sub Clause (12) of Section 65 of the Finance Act, 2007 by way of circular without there being any legislative sanction or statutory basis. Hence, the impugned action is liable to be set aside.
7. Shri K. Rajeshekar Reddy, learned Assistant Solicitor General, appearing on behalf of the respondents have sought to sustain the entire impugned action and the circulars issued by the respondents contending that the expression 'cash management' is inclusive one and the impugned circulars are only clarificatory, therefore the question of statutory interpretation as such does not arise and whatever sought to be excluded earlier was brought within the four corners of the levy and it is not open for the petitioners to question the same. Even otherwise, all these writ petitions are premature and the same are liable to be dismissed.
8. Having considered the submissions made and on perusal of the material, the crux of the matter for consideration is as to whether the petitioners' business i.e., chit fund fall within the mischief of expression 'cash management', as amended under Sub-section 12 of Section 65 of the Finance Act, 2007 and consequently under the impugned circular issued by the respondents is valid?
9. At the outset, for convenience sake, instead of referring to all the provisions under the Chit Fund Act, 1982 it would suffice to refer to the definition of Chit under Section 2(b) thereof, which reads as under:
2(b) Chit means a transaction whether called chit, chit fund, chitty, kury or by any other name or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical insalments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount.
10. The nature of chit transaction has come up for consideration before the Apex Court in Shriram Chits & Investment (P) Ltd. v. Union of India : AIR 1993 SC 2063, wherein, it has been held as under:
The provision in Section 6 relating to entering into Chit agreement clearly shows that a contract has to be entered into between the subscribers and the foreman and in view of the definitions provided in Sections 2(b), 2(c), 2(d), 2(e) and 2(j) enforceable contract comes into existence and the Act provides how the contract has to be implemented and acted upon by the parties to the contract. Therefore, it is a special form of contract contemplated by Entry 7 of List III of VIIth Schedule of the Constitution of India and it cannot be termed as money lending business. It is clear that the foreman does not lend his money to any of the subscribers. The foreman acts only as person to bring together the subscribers and certain obligations are cast upon him with a view to protect the subscribers from the mischief and fraud committed by the foreman in view of his position. The amounts are paid to the subscribers as per the chit and in accordance with the provisions of Act. It will not be correct to state that each subscriber lends money to the person who gets chit earlier. It cannot also be construed that the person who gets chit later should be treated as the money lender. The agreement between the parties that is entered as per Section 6, only provides for distribution of the chit amount. This agreement has to be treated as contract between the subscribers and the foreman and it is the foreman who brings the subscribers together and therefore, the Act provided for payment of commission for the services rendered by the foreman as he does not lend money belonging to him. The dominant purpose of the Act is to regulate the chit and control the activity of the foreman and protect the interests of the subscribers. The pith and substance of the Act is that it provides for a special contract. The legislation provides for a special kind of contract and thus squarely falls within Entry 7 of List III of Schedule VII.
11. There is no dispute to the fact that initially the Finance Act, 1994 prescribes levy of service tax and the relevant provision for the purpose is Sub-section (12) of Section 65, which reads as under:
Banking and other financial services' means;
(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate, namely:
(i) financial leasing services including equipment leasing and hire purchase by a body corporate
(ii) Credit card services
(iii) Merchant banking services
(iv) Securities and foreign exchange (forex) broking;
(v) Asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management;
(vi) Advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and
(vii) provision and transfer of information and date processing; (b) foreign exchange broking provided by a foreign exchange broker other than those covered under Sub-clause (a).
12. It has been the agreement of the respondents that since the nature of chit transactions falls within the expression of cash management and the Sub-clause (v) of the above provision excludes the same. Therefore, there was no levy of service tax on the said transactions. The aforesaid provision had undergone a change by way of an amendment under the Finance Act, 2007, with effect from 1-6-2007, in the Sub-clause (v), by which, the expression 'but does not include cash management' was omitted. Therefore, it is the case of the respondents that chit transaction and business of the petitioners falls within the mischief of 'cash management', hence it attracts levy of service tax. Hence, the impugned circular dated 23-8-2007 seeks the petitioners to adhere to the format as contemplated therein. The petitioners objected to the said action on the part of the respondents herein by raising several objections in writing. In spite of the same, since the authorities did not properly consider the same, the present writ petitions are filed.
13. Another submission, which is pressed into service on behalf of the respondents, is in regard to the definition of the financial institutions, which runs as follows:
'Financial institution' has been assigned the meaning as per Section 45-I of the Reserve Bank of India Act, 1934 [Section 65(45)], as follows:
'financial institution' means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:
(i) to (iv)....
(v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in law which is for the time being in force in any State, or any business, which is similar thereto;
(vi) ....
Thus as per Section 45-I of the RBI Act, 1934, chit funds are categorized as financial institutions.
14. De hors, several other questions which have been urged and sought to be raised from both the sides as to the scope of Article 265 of the Constitution of India as well as the principles governing the imposition of tax, it is not disputed that the taxing statute need to be interpreted strictly. It must be very specific about its levy rather than to import deeming interpretation. The petitioners specifically raised a plea in the affidavit filed in support of the writ petition that at the time of introduction of the service tax before 1994 or later when the Finance Act has undergone amendment and during the discussions of the Budget proposals, no indication was given by the Finance Minister to extend the provisions of service tax to the chit funds business. There is no denial on this aspect nor there is any explanation. Therefore, be it an asset management or cash management, both expressions strictly speaking did not find place in the definition clauses under any of the Finance Acts. It does not include or exclude the chit transaction or business specifically. There cannot be any dispute that the very nature of business and transaction under the chits as can be culled out from the provisions of the Chit Fund Act and as explained to by the Apex Court in Shriram Chits & Investments (P) Ltd. v. Union of India (supra), it stands on its own as a class. It does not have any parlance or similarity to that of normal transactions as one understood under the law or commercially. Admittedly, there is no provision whatsoever by including specifically the chits within the meaning of either 'cash management' or 'asset management'. Therefore, irrespective of such amendment either by earlier inclusion or later exclusion of those expressions, it will not have bearing on the chit transaction.
15. The respondents placed reliance on the online dictionary meaning in support of their contention that the nature of chit transactions falls within the meaning of 'cash management, which are as under:
http://ardictionary.com/Fund/6980
FUND:
Definition: an aggregation or deposit of resources from which supplies are or may be drawn for carrying on any work, or for maintaining existence.
FUND:
Definition: A stock or capital; a sum of money appropriated as the foundation of some commercial or other operation undertaken with a view to profit; that reserve by means of which expenses and credit are supported; as, the fund of a bank, commercial house, manufacturing corporation, etc.
http://www.yourdictionary.com/fund
Fund Definition
Noun
1. a supply that be drawn upon; stock; store
2.
a. a sum of money set aside for some particular purpose
b. an organization that administers such a fund
c. money available for use, as in a checking account
3. the British national debt, regarded as stock held by investors: with the http://www.merriam-webseter.com/dictonary/fund
Fund:
a: a sum of money or other resources whose principal or interest is set apart for a specific objective b: money on deposit on which checks or drafts can be drawn - usually used in plural
http://www.wordsmyth.net/live/home.php?
script+search&matchent;+management & matchtype+exact
Management:
1. the act or process of controlling, directing or governing.
16. Except mentioning in the counter - affidavit by placing reliance on those dictionary meanings, no policy decision or a statutory legislative act finds a mention. The circular seeks to rest its decision on the advice of the Reserve Bank of India.
In this connection it is relevant to note the basic principles as held, which are as under:
No tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden upon him [Per Lord Blackburn, Coltness v. Black 1 TC 287, 316 (HL); CIT v. Elphinstone : 40 ITR 142 (SC); CIT v. Vadilal : 86 ITR 2, 8;(SC); Tennant v. Smith 3 TC 158, 163 (HL); Smidth v. Grenwood 8 TC 193, 206 (HL); Canadian Eagle v. King 27 TC 205, 248 (HL); OR v. Gordon 33 TC 226, 242 (HL)].
The subject cannot be taxied unless he comes within the letter of the law; the argument that he falls within the spirit of the law cannot avail the Department [Per Lord Cairns, Partington v. Att-Gen (1869) LR 4 HL 100, 122; CIT v. Provident Inv : 32 ITR 190 (SC); CIT v. Motors & General Stores 66 ITR 692, 699-700 (SC); Drummond v. Collins 6 TC 525, 539 (HL); Duke of Westminster v. IR 19 TC 490, 524 (HL)].
Tax and equity are strangers and an equitable construction cannot be put upon the words of a taxing statute [Partington v. Att-Gen (1869) LR 4 HL 100, 122; IR v. Granite 13 TC 1, 16; CIT v. Sahana : 14 ITR 106, 109; Raju v. CIT 17 ITR 51, 61; CIT v. Rama 21 ITR 191,230)].
In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used (Per Rowlatt J, Cape Brandy v. IR (1921) 1 KB 64, 71 12 TC 358, 366, approved in CIR v. Ajax : 55 ITR 741, 747 (SC), CIT v. Shahzada Nand : 60 ITR 345, 357 (SC), 400 (SC), Tarulata v. CIT : 108 ITR 345, 357 (SC), Canadian Eagle v. King 27 TC 205, 248 (HL), and Mapp v. Oram 45 TC 651, 682 (HL), 75 ITR 411, 424).
17. In Government of Andhra Pradesh v. Smt. P. Laxmi Devi 2008 (2) SCJ 723 the apex Court held 'it is well settled that stamp duty is a tax, and hardship is not relevant in construing taxing statutes which are to be construed strictly. As often said, there is no equity in a tax vide Commissioner of Income-tax v. Firm Murar AIR 1966 SC 1216. If the words used in a taxing statute are clear, one cannot try to find out the intention and the object of the statute.'
18. Therefore in the absence of a specific statutory definition of 'cash management' or even 'asset management', the question of its wider interpretation either by seeking to include or exclude any other transactions or business does not arise and is not permissible and any such act on the part of the executive would certainly be in the teeth of Article 265 of the Constitution of India. Even the arguments to rope in the definition of the financial institution under the RBI Act, which has been mentioned above, could not come to the rescue of the respondents herein to extend the levy of service tax on the chit business, since, as per the said definition such business is included. However, it is to be noticed that the said provision has been in vogue all along, and it is not the case of the respondents that by borrowing the same, the service tax could have been levied even much earlier irrespective of the aforesaid Finance Act as mentioned above, which has undergone changes. Therefore, it is not open for the respondents herein merely because a change is brought in the Finance Act and therefore the provisions of the RBI Act would step in cannot be a sound basis. If at all, the respondents wanted to extend the levy to such business, it would have been easier for them to specifically include the same rather than in trying to borrow from different other provisions, which cannot be extended. Therefore, it is quite amply clear that in the absence of any such inclusive definition available in the statute, it cannot be said that the petitioners would fall within the mischief of the aforesaid provision. The entire action, therefore on the part of the respondents in trying to extend the levy of the tax for the first time by way of a circular is merely an executive fiat, which is not permissible under the law.
19. For the foregoing reasons, the impugned circular dated 23-8-2007 and consequential proceedings dated 18-12-2007 are set aside and accordingly the writ petitions are allowed. No costs.