T. N. Pandey
The Finance Act, 1994 introduced, for the first time, levy of tax on services. Starting with tax on three services, this tax is now leviable on more than 100 services — its coverage getting extended by each year through the Finance Acts.
Service Tax on ‘Banking and other financial services’ was levied by the Finance Act, 2001 w.e.f. July 16, 2001. There has been a gradual expansion of the scope of the service provider and, accordingly, the effective date of liability would vary.
What’s taxable service?
Taxable service has been defined under Section 65(105)(zm) to mean “any service provided or to be provided to a customer by a banking company or a financial institution, including an NBFC, or any other body corporate or commercial concern in relation to banking and other financial services. ‘Banking company’ and ‘financial institutions’ have been assigned definitions for service tax levy as have been given in Sections 45(a) and 45-I(c) of the RBI Act, 1934.
Regarding chit fund business, before the amendment by the Finance Act, 2007, it was argued that chit transactions are excluded from the definition, as these fall within the definition of cash management. From July 1, 2007 (date of issue of Notification), the CBEC claimed that such transactions too come within the purview of service tax.
Another ground for levy of service tax was based on the definition of financial institution given in Section 45-I(c) of the RBI Act, which, inter alia, defined financial institution indulging in “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 to that.”
AP High Court view
The Andhra Pradesh High Court has not agreed with the view that service tax can be levied on chit transactions in its decision in the AP Federation of Chit Funds vs UOI & Ors. (208 220 CTR AP 28) case for the following reasons:
No liability of tax on a person can be levied on chit fund transactions because there is no provision in service tax legislation for levying such a tax;
No tax can be imposed on the subject without words in the Act clearly showing an intention to levy a burden upon him;
The subject cannot be taxed unless he comes within the letter of the law; the argument that he falls within the spirit of law, cannot be of any help to the Department.
Tax and equity are strangers and an equitable construction cannot be put upon the words of a taxing statute;
In a taxing legislation, one has to look merely to 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 and nothing is to be implied. One can only look fairly at the language used [Rowlatt J. in Cape Brandy Syndicate vs IRC (1921) 1 KB 64, 71].
Taxing statutes are to be construed strictly.
If the words in a taxing statute are clear, one need not try to find out the intention and object of the statute from other pieces of legislation.
Hence, it has been held that in the absence of a specific statutory definition of ‘cash management’ or even ‘asset management’ in service tax legislation, the question of its wider interpretation does not arise and doing so would be contrary to Article 265 of the Constitution.
Even the definition of ‘financial institution’, as given in the RBI Act, is of no assistance. Hence, the decision of the service tax authorities to levy tax for the first time on chit transactions, through Circular No. 96/7/2007-ST of August 23, 2007, has been held invalid. It is merely an executive fiat, which is not permissible under the law.