Brief case: Chit fund gets service tax relief

A weekly selection of key court orders

Chit fund gets service tax relief

The Supreme Court has dismissed an appeal of the central government which had demanded service tax from chit fund firms claiming they were covered by the expression “banking and financial services” under the Finance Act, 1994. The firms challenged the 2007 circular of the Central Board of Excise and Customs in the Andhra Pradesh High Court, arguing their business did not amount to any service. The high court allowed their petitions and quashed the circular. The revenue authorities appealed to the Supreme Court (SC). The law had changed several times since then. The dispute referred to the period between 2007 and 2012. The SC drafted two questions and answered them against the revenue department. The first was whether the chit firms’ activity could be treated as business of cash management. The answer was no. The second question was whether chit funds could be treated as a form of fund management. Again the answer was no. Fund management referred to a fund normally created for a specific purpose and utilised for that purpose. Looking at the definitions, the apex court ruled in the case, Union of India vs Margadarsi Chit Fund, that chit funds could not be treated as fund management. The opposite view held by the Kerala High Court was declared to be wrong.

Award cannot be challenged again

Once an arbitration award becomes final, it cannot be challenged during execution proceedings, the Supreme Court has ruled in its judgment for Punjab State Civil Supplies Corporation vs Atwal Rice & General Mills. The executing court has to execute the decree and cannot go beyond that. In this case, the corporation provided grains to the mills for processing so they could be delivered to the Food Corporation of India. The mills did not do its part on time, leading to the dispute in which the corporation partly succeeded before the arbitral tribunal. The mills challenged it before the civil court, but did not succeed. The award thus became final. But, when the mills raised objections before the Ludhiana executing court, it upheld the objections. The Punjab and Haryana High Court also upheld the objections. The Supreme Court allowed the appeal of the corporation stating the courts below were wrong. The judgment said: “We are constrained to observe that the executing court and the High Court either did not understand the controversy or if understood, miserably failed to decide the same in accordance with law.”

Reduction of compensation ‘unfair’  

“When people in distress approach the motor accident compensation tribunal and the compensation amount has been granted, the appeal court cannot arbitrarily modify the amount. There has to be valid and cogent reasons while passing the judgment,” the Supreme Court has stated, criticising the Orissa High Court for drastically reducing the amount. A widow and her family moved the court demanding ~15 lakh as compensation for the death of their breadwinner in a road accident. The tribunal awarded ~14 lakh plus 8 per cent interest from the date of the claim. The insurance company appealed to the high court. It felt the amount was excessive for a person who earned ~9,000 per month as salary. The high court reduced the amount to ~9.5 lakh. The family appealed to the Supreme Court in the case, Baijayanti vs National Insurance Co. The court restored the original amount granted by the tribunal observing it was just and reasonable and the high court was wrong in reducing it in an “extremely cryptic” order. 

Withholding interest illegal 

The Bombay High Court last week held the excise appellate tribunal was wrong in holding that the Dadar-based Indo Swiss Embroidery Industries Ltd was liable to pay interest on the dues illegally demanded by the authorities when there was no provision in law for charging interest. The joint commissioner of Vapi had alleged the company had incorrectly classified its textile products and demanded penalty with interest. This was challenged and the company had been trying to assert its case for 13 years before different forums. When the appellate tribunal ultimately decided the demand was wrong, the authorities refunded the amount already paid after deducting interest. The company moved the high court, which quashed the tribunal order upholding the deduction of interest. The judgment noted that the orders of various authorities were given without reasons or going into the relevant provisions of law. They merely confirmed the orders of the authorities below.

Lubricating oil order struck down

The Calcutta High Court has struck down the West Bengal Lubricating Oil Licensing Order, 1967, as it has become irrelevant in view of the radical change in scenario and its original purpose did not exist today. It has become “unnecessary, unreasonable and illegal” and violated the freedom of trade guaranteed in the Constitution, the court stated in its judgment in the case, Lubricating Oil Dealers’ Association vs Union of India. The licensing order was passed when there was acute shortage of essential commodities and the government wanted equitable distribution of the product. Later, private companies started production and import was also allowed. Therefore it was a free trading commodity. The order under the Essential Commodities Act was now used by unscrupulous officials for harassment, it was argued by the dealers.

SBI to pay for losing deeds in custody

The National Consumer Disputes Redressal Commission has asked the State Bank of India (SBI) to pay compensation after losing lease deeds of immovable property mortgaged to it. In this case, Utpal Gope deposited original lease deeds in the bank to get a loan. When he repaid the loan and wanted the document back, the bank could not trace it. It obtained a certified copy from the sub-registrar. This was not satisfactory relief, as the judgment pointed out that “a prudent financier/lender may not give loan/credit facility for a business purpose only on the basis of the mortgage created by deposit of the certified copy”. Moreover, if the owner wanted to sell the house which he had constructed on leasehold land, no buyer was likely to pay the full market price of the house, if the original lease deed was not delivered to him.

Though such a property may still be sold on the basis of the certified copy of the lease deed and on execution of indemnity bond etc. the seller won’t get the full market price. Therefore, the seller had suffered substantial financial loss on account of the bank having lost the original deed deposited by him, the judgment said while upholding the order of the Chhattisgarh consumer commission.