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The Delhi High Court has quashed the Centre's notification to levy service tax on chit-fund business, saying the act of a foreman, who conducts auction of chit amount among contributors, does not fall under the definition of "service" provided in the Finance Act.
"We have come to the conclusion that no service tax is chargeable on the services rendered by the foreman in a business chit fund on an interpretation of the statutory provisions," the bench of justices B D Ahmed and R V Easwar has said in a recent judgement.
"The notification of June 20, 2012 issued by the Government of India, Ministry of Finance (Department of Revenue) is quashed," the court said.
The court's verdict came on the plea of Delhi Chit Fund Association seeking quashing of a provision under the Finance Act, 1994, which was made applicable from July 1, 2012, to make chit business taxable under the new law.
Discussing the provision and the relevant case laws, the court said "in a chit business, the subscription is tendered in any one of the forms of money as defined in section 65B(33)of the Finance Act.
"It would, therefore, be a transaction in money. So considered, the transaction would fall within the exclusionary part of the definition of the word 'service' as being merely a transaction in money.... Either way, there can be no levy of service tax on the footing that the services of a foreman of a chit business constitute a taxable service."
The provision of the Finance Act said that there shall be levy of service tax "at the rate of twelve per cent on the value of all services" rendered by the chit fund firms.
