JUDGMENT

1. Consequence of the amendment to S. 65(12)(a)(v) of the Finance Act 1994 in the year 2007, deleting the words “but does not include cash management” and the effect of the subsequent Circular bearing No. 96/7/2007-ST dated 23.08.2007 issued by the Central Board of Excise and Customs (CBEC) of the Ministry of Finance, New Delhi, is the subject matter involved in all these cases. As a result of the said amendment, the petitioners, who are running chitty business in the State of Kerala, were sought to be brought within the purview of the Service Tax Net, which is under challenge.

2. The crux of the contentions raised by the petitioners is that, they are not covered by the Kerala Chitties Act, 1975 as made clear by a Full Bench of this Court in Oommen Panicker v. Muthoot Mini Chit Fund (1995 (1) KLT 401 (F.B); that the amendment by way of S. 4(l)(a) brought about by the State of Kerala stands set aside as unconstitutional by a Division Bench of this Court in Dharmodayam Company v. Union of India (2005 (3) KLT 332); that the Chit Funds Act, 1982 enacted by the Central Government was still to be notified within the State of Kerala (notified only with effect from 30.4.2012) and that Service Tax can be sought to be imposed only by a positive incorporation of the particular service in the statute and not by way of Circular issued for the first time, invoking the power under S. 37B of the Central Excise Act, 1984 read with S. 83 of the Finance Act, 1994. W.P(C) No. 32097/2007 has been filed by All Kerala Association of Chit Funds, which is stated as the State unit of All India Association of Chit Funds, New Delhi as the first petitioner and by one of its members as the second petitioner. The other Writ Petitions have been filed by similarly situated associations or members. Most of the chitty establishments as above stand registered outside the State of Kerala; particularly in Jammu Tawi or Faridabad, though there is some exception like W.P(C) No. 8711/2009, which has been filed by the K.S.F.E, a State-owned undertaking and W.P(C) No. 1703/2011, by the petitioner who has got registration within the State of Kerala at Aleppey. All the petitioners running the chitty business are registered under the relevant provisions of the Indian Companies Act, 1956.

3. There is no much factual controversy and the dispute is only with regard to the liability to take registration for the purpose of Service Tax and as to the liability, if any to remit the tax as envisaged under S. 66 of the Finance Act, 1994. The petitioners contend that no tax liability was there, ever since the enactment of the Finance Act, 1994, which by itself shows that there was no intention to impose Service Tax upon the entities like the petitioners as they stand apart as a different class, who according to the petitioners are not rendering any service. It is also stated that, by virtue of the definition of the terms “banking and other financial services” as defined under S. 65(12) of the Finance Act and “taxable services” as defined under S. 65(105)(zm), they do not pursue any activity, which is taxable and stood excluded from the purview of tax net. Merely by deletion of some words under S. 65(12)(a)(v) by virtue of Amendment Act in the year 2007, the tax net cannot be widened to bring in the petitioners, making them liable for service tax. It is for the first time in the year 2007, that the petitioners were sought to be included in the tax net, that too, on the basis of Ext. P2 Circular (in W.P(C) No. 2822/2008), which cannot by itself take the place of a charging provision, in the absence of any specific provision in the statute. The Circular cannot override the provisions of the statute, forms the basic contention.

4. Ext. P1 Circular dated 23.08.2007 (in W.P(C) No. 32097/2007) is pressed into service to contend that the petitioners' institution stands outside the purview of tax net by virtue of the clear exclusion set forth in S. 65(12)(a)(v) of the Finance Act, 1994 and as such, they could not have been taxed for the first time on the basis of Ext. P1 Circular (in W.P(C) No. 32097/2007), which according to the petitioners is on the basis of some astrological assumption and not based on any authority. It is also contended that tax cannot be levied without the authority by law, as envisaged under Art. 265 of the Constitution of India. It is further contended that the issue, particularly with regard to the sustainability of Ext. P2 Circular (in W.P(C) No. 2822/2008) has been considered by a Division Bench of Andhra Pradesh High Court and the contention raised by the petitioners similarly situated like the petitioners herein, was upheld and the said Circular has already been set aside as per the decision reported in A.P Federation of Chit Funds v. Union of India (2009 (13) SRT 350 (A.P), a copy of which has been produced for the convenience of reference as Ext. P8 in W.P(C) No. 1703/2011.

5. The respondents have filed counter affidavit inmost of the cases seeking to sustain the Circular and the steps taken to impose the Service Tax. It has been asserted that Ext. P2 Circular (in W.P(C) No. 2822/2008) is only ‘clarificatory’ in nature, with regard to the effect of the amendment brought about in the year 2007, to S. 65(12)(a)(v) of the Finance Act 1994. It is not on the basis of Ext. P2 Circular (in W.P(C) No. 2822/2008) that the tax liability was sought to be imposed, but, by virtue of the amendment of the statutory provision. It is stated that tax can be imposed either ‘by incorporation’ or ‘by deletion’ of a provision in the existing statute, to the requisite extent, which in fact has been brought about as per the amendment in 2007. The effect of such amendment has alone been explained in the Circular and as such, the contention of the petitioners that the liability to pay tax has been brought about by virtue of the Circular is thoroughly wrong and misconceived. It is also stated that the very Finance Act, 1994, vide S. 65(45) stipulates that ‘financial institution’ has the same meaning as assigned to it under S.’45-l’ of the Reserve Bank of India Act, which takes in; managing, conducting or supervising as Foreman, Agent or in any other capacity of Chits, Kuries as defined in any law which is for the time being in force in any State or any business, which is similar thereto [Clause (c)(v)]. It was since the unamended S. 65(12)(a)(v) of the Finance Act, 1994 clearly excluded ‘cash management’ from the purview of the taxable sweep that Ext. P1 Circular (in W.P(C) No. 32097/2007) was issued by the R.B.I making it clear that the activity of running a business in Chitties clearly amounts to cash management and as such, stood excluded from the purview of taxation. Pursuant to the amendment made to the very same provision, by deleting the words “but does not include cash management,” the exclusion given disappeared, thus bringing the Chitty business as well within the taxable net; which alone has been clarified vide Ext. P2 Circular (in W.P(C) No. 2822/2008). As mentioned herein before, there is no factual controversy in these cases and the issue is purely a legal question.

6. Sri.K.S Bharatan, the learned counsel for the petitioner in W.P(C) No. 32097/2007 led the arguments on behalf of the petitioners, assisted by the other learned counsel appearing on behalf of the petitioners in the other cases. The arguments on behalf of the respondents were mainly led by Sri John Varghese, the learned Central Government counsel and it was supplemented by the other central Government counsel in the concerned cases.

7. In support of the contentions raised by the petitioners as pleaded and mentioned above, the learned counsel for the petitioners submits that the chitty business being run by the petitioners is a special form of contract and there is no money lending business or debtor-creditor relationship, nor is there any service being rendered by the petitioners to the subscribers. The subscription effected by the members of the Chitty coming to the common pool, is disbursed to the person in whose name the Chitty is prized, either by way of lot or auction, of course after deducting the discount, the commission of the foreman and distributing the dividend (discount) among all the members concerned. It is not any ‘asset management’ or ‘cash management’ as specifically held by the Division Bench of the Andhra Pradesh High Court in the decision cited supra, submits the learned counsel. The true nature of the transaction is sought to be highlighted with reference to Shriram Chits and Investment (P) Ltd. v. Union of India (1993 Supp (4) SCC 226). The learned counsel submits that Ext. P2 Circular (in W.P(C) No. 2822/2008) has been issued invoking the power under S. 37B of the Central Excise Act, which cannot by itself impose a new tax liability upon anybody and the said power to issue instructions to the subordinate officers cannot override the provisions of the Act so as to add or delete something into or from the same. The learned counsel pointed out that the Chit Funds Act 1982 (Central Statute) was made applicable to the State of Kerala only with effect from 30.4.2012 and S. 85 of the Act saves all the existing Chitties, while S. 90 speaks about repeal and saving. The law declared by the Apex Court in Workmen of National and Grindlays Bank Ltd. v. The National and Grindlays Bank Ltd. ((1976) 1 SCC 925 : AIR 1976 SC 611 (paragraph 15) is also sought to be relied on as to the “working funds” and to contend that the chit funds belong to a class by itself.

8. The learned Standing Counsel for the respondents submits that the liability fixed to satisfy the Service Tax upon the petitioners, who are running the Chitty business is only by virtue of the amendment to the statute in the year 2007 and not as a result of Ext. P2 Circular. In so far as the relevant provisions of the statute are not under challenge, there cannot be any valid challenge against the Circular, which is only clarificatory in nature, submits the learned standing counsel. It is also pointed out that the constitutional validity of any provision can be challenged only if there is any legislative incompetence or infringement to any of the constitutional provisions (except the directive principles or the State Policy). Even if the Circular goes (for any reason), the statutory provision stands as it is, as the amendment is not under challenge and that the power to tax can be either by an ‘addition’ or by ‘deletion’ of the provisions as discernible from the law declared by the Apex Court in Kasinka Trading v. Union of India ((1995) 1 SCC 274) (paragraph 21,22,23). The learned Standing Counsel also submits that all the relevant aspects, particularly including the correct provision of law were not brought to the notice of the Division Bench of the Andhra Pradesh High Court and as such, the decision reported in A.P Federation of Chit Funds v. Union of India (2009 (13) SRT 350 (A.P) has not been correctly rendered and cannot have any binding effect upon this Court. The learned Standing Counsel places reliance on the decisions rendered by the Apex Court in Shri. Ram Krishna Dalmia v. Shri Justice S.R Tendolkar (AIR 1958 SC 538) East India Tobacco Co. etc. v. State of Andhra Pradesh (AIR 1962 SC 1733), Raja Jagannath Baksh Singh v. State of Uttar Pradesh (AIR 1962 SC 1563), The Twyford Tea Co. Ltd. v. The State of Kerala (1970 KLT 181 (SC) : (1970) 1 SCC 189 : AIR 1970 SC 1133), R.K Garg v. Union of India ((1981) 4 SCC 675), Greater Bombay Co-op. Bank Ltd. v. United Yam Tex(P) Ltd (2007 (3) KLT 302 (SC) : ((2007) 6 SCC 236), Karnataka Bank Ltd. v. State of Andra Pradesh ((2008) 2 SCC 254), Government of Andhra Pradesh v. P. Laxmi Devi ((2008) 4 SCC 720) and Transport and Dock Workers Union v. Mumbai Port Trust (2010 (4) KLT SN 84 (C.No.98)SC : (2011) 2 SCC 575), concluding that even in a case involving challenge of a statutory provision, if two views are possible, the one sustaining the provision has to be adopted, giving effect to the statute and that the Court should be slow in setting aside the law enacted by the legislature consisting of the representatives elected by the people.

9. In reply to the above submission, the learned counsel for the petitioners submits that, the necessity of funds/funds management finds a place in Commissioner of Income Tax (Central II), Calcutta v. Duncan Brothers & Co. Ltd. Calcutta ((1996) 8 SCC 31) (paragraph 12 and 13) and adds that in the case of ‘funds management’, it is investment oriented, whereas in the case of ‘cash management’, it is purely a liquidated affair. Besides citing Kerala Financial Corporation v. C.I.T (1994 (2) KLT 303 (SC) : ((1994) 4 SCC 375) explaining the scope and nature of the Circular and that it cannot override the Act, the learned counsel also refers to the decision rendered by the Apex Court in Orient Paper Mills Ltd. v. Union Of India. (AIR 1969 SC 48) (paragraph 8) which is followed in Birla Jute and Industries Ltd. v. Assistant Collector of C.Ex (1992 (57) ELT 674 (Cal)) by a Single Bench of the Calcutta High Court and also in West Coach Paper Mills, Dandeli v. Superintendent of Central Excise, Dandeli (1984 (16) ELT 91 (Kar.)) (paragraph 11), rendered by a Division Bench of the Karnataka High Court. The learned counsel also submits that, since the mandate under S. 65(12) of the Finance Act 1994 contemplates only specified services as mentioned thereunder, no other entry can be brought in, to make them suffer any adverse consequences. It is also stated that, interpretation of a legal provision in a taxing statute has to be very strict and that the provision has to be taken as it is, without any exercise or exploration to analyse the ‘spirit’ of the statute or the indentment or equity aspects involved.

10. The scope of enactment of Chit Funds Act, 1982 to save the members/ subscribers from the acts/misdeeds of unscrupulous foreman and to control/relegate the activities in connection with the Chitty business has been vividly explained by the Apex Court in the decision in Sreeram Chits and Investments (P) Ltd. v. Union of India (1993 Supp (4) SCC 226 : AIR 1993 SC 2063). As observed by the Apex Court, ‘Chit fund’ is perhaps the oldest indigenous institution in India and the origin of Chitty, Kuri or Chit fund is traceable beyond more than a century in the rural parts of southern India. Systematic and periodic contribution of a fixed measure of grain/funds deposited with a Trustee, is disbursed to the needy person, through draw of lots (Chit/Kuri/Kurip) and the contribution as above is for a specified number of instalments, which enables the trustee/foreman to have his share as well, by way of commission. By the passage of time, the easy mobilisation of funds to meet the contingency by way of Chits came to be widely accepted and adopted throughout the country and various States enacted statutes to control/regulate the affairs of the Chits. It was to bring about a uniformity in the deals and to save the beneficiaries/subscribers concerned to the requisite extent, that the Central Government came forward with the Chit Funds Act, 1982 legislating the same, invoking the power under Entry No. 7 of List III (Concurrent List) of the Seventh Schedule to the Constitution of India. Challenge against the validity of the said enactment was the subject matter of consideration bef ore the Apex Court in Sreeram Chits and Investments (P) Ltd. v. Union of India (1993 Supp (4) SCC 226 : AIR 1993 SC 2063). The decision rendered by the Full Bench (of 5 Judges) of this Court in Janardhana Malian v. Gangaclharan (1983 KLT 197 (F.B) : AIR 1983 Ker. 178) overruling the earlier decision of this Court in P.K Achuthan v. State Bank of Travancore, Calicut (AIR 1974 Ker.47), holding that there was no debtor-creditor relationship in a chitty transaction and that the chitty agreement to remit the future instalments after prizing the chitty is not a promise to pay the existing debt, but is only to pay in discharge of a contractual obligation (as to be specified in the ‘chitty variola’, to be effected in future days) was affirmed by the Apex Court observing that it is not a money lending transaction. The validity of the Central legislation upon the subject was upheld, referring to various aspects dealt with in detail. In short, the purpose of enactment and the context involved as to the regulation/control over the funds, showing the fact that Chit funds form a class, stands highlighted in the said verdict.

11. With regard to the scope and applicability of Kerala Chitties Act, 1975 and the amendments carried out in the year 2002 by the State and the applicability of the Chit Funds Act, 1982, it is true that a Full Bench of this Court as per the decision reported in Oommen Panicker v. Muthoot Mini Chit Fund (1995 (1) KLT 401( F.B) held that the Kerala Act would not apply to the Chits conducted by the petitioners from ‘Jammu Tawi’ or ‘Faridabad’ (places from outside the State of Kerala). It was to get over the said situation, that the relevant provision of the said Act was amended in the year 2002, which came to be challenged in Dharmodayam Company v. Union of India (2005 (3) KLT 332) and such other connected cases. This Court declared the amendment as unconstitutional, which led to the challenge before the Apex Court in appeal, preferred at the instance of the State. As per the amendment, the chitties registered outside the State, having 20% or more of its subscribers normally residing in the State were brought within the ambit of the Kerala Chitties Act 1975, which was contended as ultra vires, being repugnant to the Constitutional provision under S. 254(1) and the provisions of the Central Chit Funds Act 1982. The Bench who considered the issue referred the matter to a larger Bench. The questions to be answered, as formulated by the Apex Court, were:

I) Whether making of the law or its commencement brings about repugnancy or inconsistency or envisaged in Art. 254(l) of the Constitution ?

II) The effect in 1 aw of a repeal.

III) Inconsistencies in the provisions of the Kerala Chitties Act, 1975 which shall be the Central Chit Funds Act. 1982.

12. After exhaustive analysis of the relevant provisions and comparative analysis of the conflicting provisions between the State Act and the Central Act, the Apex Court answered the reference as reported in State of Kerala v. Mar Appraem Kuri Co. Ltd. (2012 (2) KLT 639 (SC)) summing up the conclusion in paragraph 28, which reads as follows:

28. To sum up, our conclusions are as follows:

i) On timing, we holding that, repugnancy arises on the making and not commencement of the law, as correctly held in the judgment of this Court in Pt. Rishikesh v. Salma Begum (Smt) ((1995) 4 SCC 718).

ii) Applying the above test, we hold that, on the enactment of the Central Chit Funds Act, 1982, on 19.08.1982, which covered the entire field of “chits” under Entry 7 of List III of the Constitution, the Kerala Chitties Act, 1975, on account of repugnancy as enshrined in Art. 254(l), became void and stood impliedly repealed. That, on the occupation of the entire field of “chits”, the Kerala Legislature could not have been enacted the State Finance Act No. 7. of 2002, inserting S. 4(la) into the Kerala Chitties Act, 1975, particularly on the failure of the State in obtaining Presidential assent under Art. 254(2).

iii) That, the Central Chit Funds Act, 1982 though not brought in force in the State of Kerala is still a law made, which is alive as an existing law. By reason of Art. 367 of the Constitution, the General Clauses Act, 1897 applies to the repeal. S. 6 of the General Clauses Act. 1897 is, therefore, relevant, particularly Sections 6(b) and 6(c) and consequently, the previous operation of the Kerala Chitties Act. 1975 is not affected nor any right, privilege, obligation or liability acquired or incurred under that repealed State Act of 1975. Thus, after 19.08.1982, the Kerala Chitties Act, 1975 stands repealed except for the limited purposes of S. 6 of General Clauses Act. 1897. If and when the Central Government brings into force the Chit Funds Act. 1982 by a notification in State of Kerala. under S. l(3), S. 90(2) will come into play and thereby the Kerala Chitties Act, 1975 shall continue to apply only to chits in operation on the date of commencement of the Centra! Chit Funds Act, 1982 in the same manner as the Kerala Chitties Act. 1975 applied to chits before such commencement.

13. The concept of tax on service was introduced as per Chapter V of Finance Act 1994 and the tax implement occurs on rendition of service by the service provider to the service recipient. S. 66 is the charging provision and the measure of taxation is the amount charged by the provider, on the recipient, with an exemption upto the gross figure of 10 lakhs. So as to deal with the issue involved in these cases, it is quite appropriate to refer to some of the provisions of the Statute, particularly S. 65(12) which defines the term “Banking and other financial services” and S. 65(105) which deals with the “taxable services” with specific reference to Sub-clause (zm)

14. Section 65(12). “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 or commercial concern namely.-

(i) ………….

(ii) …………

(iii) …………

(iv) …………

(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services;

S. 65(105) “taxable services” means any service provided

15. (zm) to a customer, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services;

16. By virtue of the nature of terminology used under S. 65(12)(a)(v), a doubt was felt whether the Chit funds establishments could be brought within the tax net or not. S. 65(45) of the Finance Act 1994 assigns the ‘financial institution’, the same meaning as defined under S. 45(1) of the R.B.I Act. S. 45(1) of the R.B.I Act at Clause (c)(v) reads as follows:

(c) “financial institution” means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:-

(v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto;

From the above, it is clear that the ‘Chit funds’ are categorised as financial institutions and that the financial institution referred to in the Finance Act also takes in the Chit funds establishments as well. But then, the question is whether the service rendered by such institution does come within the purview of the term ‘banking and other financial services’ specified thereunder, particularly under S. 65(12)(a) (v). It was in the said circumstances, that the Board (CBEC) sought for clarification from the RBI, on receipt of which, Circular No. 41/4/12 dated 15.02.2012 was issued (Ext. P6 in W.P(C) No. 1703/2011) making it clear that Reserve Bank had pointed out that, business of Chit funds is to mobilise ‘cash’ from subscribers and effectively cause movement of such cash, to keep it working and therefore the activity of ‘Chit fund’ is in the nature of ‘cash management’, which stands specifically excluded from the scope of “Banking and other financial services” as defined under the relevant provisions of the Finance Act 1994. Accordingly, it was clarified that the ‘banking and other financial service’ will not include the service rendered by Chit funds and in turn, the services rendered by the Chit funds will not fall in the category of ‘taxable services’ as defined under S. 65(105)(zm) of the Finance Act 1994.

17. Things took a different turn, when there occurred an amendment to the Finance Act 1994 in the year 2007, whereby the words “but does not include cash management” as it appeared in S. 65(12)(a)(v)came to be deleted. Whether by deletion of the above words, the petitioners could be brought within the purview of tax net by the statute itself or whether such an attempt is made only by issuance of Ext. P2 Circular (in W.P (C) No. 2822/2008), is the point.

18. Admittedly, Ext. P2 Circular dated 23.08.2007 has been issued by the Board invoking the power under S. 37B of the Central Excise Act 1994 (as made applicable to service tax by S. 83 of the Finance Act 1994). S. 37 B of the Central Excise Act, 1944 reads as follows:

37B.Instructions to Central Excise Officers.-- The Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act, shall observe and follow such orders, instructions and directions of the said Board:

Provided that no such orders, instructions or directions shall be issued -

(a) so as to require any Central Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner; or

(b) so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions.

19. At the time of introduction of Service Tax in the year 1994, tax was sought to be realised only in respect of three taxable services. The tax net was widened in the course of time, bringing as many as 100 services as on the date of issuance of Ext. P2 Circular (in W.P(C) No. 2822/2008) and much more, till the entire scenario got changed with effect from 1.7.2012, when ‘negative list system’ was introduced, providing exclusion only to such services included in the negative list, with intent to bring in all other services. The Government with intent to undertake a comprehensive review of all clarifications issued since the introduction of Service Tax, appointed a Committee headed by Shri.T.R Rustagi, former Chief Commissioner of Customs & Central Excise and Director General of Inspection and views and suggestions were sought for from different comers. The report of the Committee was also placed in the website for comments and suggestions and it was thereafter, that Ext. P2 Circular was issued in supersession of all circulars and communications to the extent as specified therein. As per the said Circular, it was clarified that, Service Tax was liable to be paid in the case of ‘business chit funds’, where cash management service was provided for a consideration in respect of banking and other financial services, whereas in the case of ‘simple chit funds’, where there is no consideration, levy of Service Tax will not arise. The Circular also clearly specifies that the views stated therein only reflect the interpretation of law, which is not to be treated as part of law and it does not override the legal provisions and that the statutory provisions must be referred to and they will prevail (Clause 8).

20. Coming to the scope of Ext. P2 Circular, it is settled law, that the Circular issued by the Departmental Authorities can never override the specific provisions of the statute. So also it cannot be disputed that no tax can be imposed without any authority of law, by virtue of Art. 265 of the Constitution of India and the taxing statute specifically enables the realisation of such tax. The scope of S. 37(B) of the Central Excise Act and the effect of the Circular issued thereunder came to be dealt with in detail by the Apex Court as per decision reported in Orient Paper Mills Ltd. v. Union Of India. (AIR 1969 SC 48). The legal position in this regard stands well declared by virtue of the authoritative pronouncement made by the Apex Court as per the decision reported in Kerala Financial Corporation v. Commissioner Of Income Tax (1994 (2) KLT 303 (SC) : ((1994) 4 SCC 375), making in clear that if the liability is not actually excisable, the same cannot be sought to be included by way of Circular. The said decision was followed by a Single Bench of the Calcutta High Court as per the decision in Birla Jute and Industries Ltd., v. Assistant Collector of C. EX. (1992 (57) E.L.T 674). Almost similar is the observation of the Division Bench of the Karnataka High Court as to the scope of Circulars in West Coast Paper Mills, Dandeli v. Superintendent of Central Excise, Dandeli (1984 (16) E.L.T 91). There cannot be any further controversy in this regard and the position has been reiterated by the Supreme Court in 1994 (2) KLT 303 (SC) : ((1994) 4 SCC 375 (cited supra) as well. This being the position, this Court accepts the contention of the petitioners that no tax liability can be imposed for the first time, as per Ext. P2 (W.P(C) No. 2822/08) Circular, if it does not derive the source from the taxing statute.

21. Contention of the respondents seems that Ext.P2 (W.P(C) No. 2822/08) Circular by its own does not bring about any tax liability and that the liability actually flows down from the statute itself; particularly by virtue of the amendment made in the year 2007 to S. 65(12)(a)(v) whereby the words “but does not include cash management” were excluded. The contention of the petitioners is that the tax liability was brought for the first time, only as per the Circular, which position has been upheld by a Division Bench of the High Court of Andhra Pradesh and that the Circular has been set aside. This being the position, no liability can be mulcted upon the petitioners, demanding Service Tax in respect of Chitty transactions; contend the petitioners.

22. In view of the dispute as to the contents of the Circular and the Statute, it has become necessary to examine the same and to see whether the Circular attempts to dictate the law, providing for imposition of tax for the first time, without any enabling provision in the statute. On going through the contents of Ext. P2 (W.P(C) No. 2822/08) Circular, this Court finds that, the scope and object of the Circular is very much discernible therefrom, particularly Clause 8 which reads as follows:

Clause 8: “Views stated in the Circular reflect the interpretation of the law and the current practice of the department This Circular is not to be treated as part of law and does not override the legal provisions. The relevant statutory provisions must be referred to and they will provide”.

23. Clause 8 proclaims in explicit terms that the Circular does not bring about any liability or such other instance by itself, where the statutory provision is sought to be referred to. The authority who issued the Circular was very much conscious and aware of the already existing statutory’ provisions and it is only in clarification of the same, [especially by virtue of the amendment brought about in the year 2007, deleting the words “but docs not include cash management” from then existing provision of S. 65(12)(a)(v)], that the position was explained, making other clarifications as well, pointing out that tax liability will be there only in respect of Chitty transaction involving a ‘consideration’ as in the case of the ‘business chit funds’, while attracting no such tax in the case of ‘simple chit funds’. In view of the unequivocal expression in Clause 8 of Ext. P2 (W.P(C) No. 2822/08) Circular, pointing out that the Circular is not to be treated as part of law and does not override the legal provisions and that the relevant statutory provisions must be referred to and they will prevail, no doubt could have arisen in the minds of anybody, as if the Circular had attempted to fix the tax liability for the first time without any regard to the statutory provisions. This Court finds that the Clause 8 in Ext. P2 (W.P(C) No. 2822/08) Circular was presumably not specifically brought to the notice or highlighted before the Division Bench of Andhra Pradesh High Court while rendering the decision in A.P Federation Chit Funds v. Union of India (2009 (13) STR 350 (A.P)), as it is not referred to or discussed therein.

24. Then, the question is whether there is anything in the statutory provision, so as to sustain the taxable instance. There is a contention for the petitioners that, merely by deletion of some words from the existing provision, no taxable instance can be brought about; which on the other hand has to be effected by a positive incorporation. This Court finds it difficult to accept the said proposition. As made clear by the Apex Court in the decision reported in Kasinka Trading v. Union of India ((1995) 1 SCC 274), power to tax very much involves the power to amendment as well, either by incorporation or by deletion. When the existing statute does not provide for taxing a particular instance, it can be amended by way of positive incorporation. Similarly, when the statute reckons the power to tax a particular instance but gives some exclusion, as a result of which tax cannot be realised (in so far as the exclusion stands), the moment when the exclusion clause is deleted by virtue of an amendment, the barrier is gone and it very well comes within the taxable net. The point to be considered is, whether the amendment brought to the Finance Act 1994 in the year 2007 is to the said extent, so as to sustain the taxation.

25. As mentioned hereinbefore, as per the unamended provision under S. 65(12)(a)(v), the ‘banking and other financial services’ meant Asset Management, including Port Folio Management, all forms of Fund Management, Pension Management, Custodial, Depository and Trust Services but did not include ‘Cash Management’. But for the last limb, the provision enabled taxation in respect of the above services as well, whereby a very wide sweep was provided so as to have included all forms of ‘fund management’ providing an exception to ‘cash management’. In view of the different terminology used, as to the ‘fund management’ and ‘cash management’ separately, the institutions involving ‘cash management’ were never to attract any tax liability. The statute of course does not define the terms ‘fund management’ or ‘cash management’ and hence it was always possible to have a controversy, whether the activity pursued by the Chitty establishments was ‘cash management’ to get an exclusion, although the provision very well took in all forms of fund management.

26. Whether the activity of the Chitty establishments was constituting any ‘cash management’ to attract the tax got attention of the Central Board of Excise and Customs, who sought for clarification of the Reserve Bank of India, by virtue of the pivotal role of the R.B.I under the R.B.I Act in Economic Affairs and also by virtue of S. 65(45) of the Finance Act 1994, wherein the word ‘financial institution’ has been assigned the same meaning as defined under S. 45T of the R.B.I Act 1934. After considering the matter, the R.B.I gave an opinion that the transaction well amounted to ‘cash management’ and it was in the said circumstance, that Ext. P1 (in W.P(C).No. 32097/2007) Circular was issued in the year 2007 by the Board (CBEC), letting all known, that Chitty transaction did not attract any Service Tax, as ‘cash management’ was specifically excluded under S. 65(12)(a)(v), of the Finance Act 1994.

27. Admittedly, the words “but does not include cash management” came to be deleted from S. 65(12)(a)(v) as per the amendment brought about in the year 2007, whereupon the sweep of the provision got widened and all forms of fund management came to be reckoned for the purpose of taxation. In other words, when the unamended provision provided to impose tax in respect of service involving all forms of fund management, exemption was given to services involving, ‘cash management’, which rescued the petitioners earlier. But as per the amended provision, deleting the words “but does not include cash management”, the term “all forms of fund management” came to be revitalized with full vigour and wider reach. This being the position, the legal provision, part of which was ‘dormant’ because of the exclusion under S. 65(12)(a)(v), came to be ‘live’ and potent pursuant to deletion of the exclusion clause. As such, the respondents are justified in contenting that the amendment of the statute in the year 2007 by deleting the word “but does not include cash management” to S. 65(12)(a)(v) has brought about the tax liability upon the Chitty transactions; which alone has been clarified by Ext. P2 Circular (in W.P(C). No. 2822/08) and it was never brought about for the first time as per Ext. P2, on its own. This Court finds that, the scope of the term “all forms of fund management” with exemption to the ‘cash management’ and the effect of deletion of the relevant portion revitalizing the partly dormant clause of “all forms of fund management”, was not properly highlighted or caused to be considered by the Division Bench of the High Court of Andhra Pradesh, while passing the verdict in 2009 (13) STR 350 (AP) (cited supra).

28. Some of the petitioners have contended that the activity being pursued by the chitty establishments, is not ‘cash management’ (as in W.P(C) No. 1703/2011-Ground ‘E’). If it is not ‘cash management’, then they were very much liable to be included even as per the unamended provision of S. 65(12)(a)(v). It was only by virtue of the exemption given to the activity of ‘cash management’, as advised by the R.B.I, that the Central Board of Excise and Customs issued Ext. P1 (W.P(C) No. 32097/2007) clarification in the year 2002, holding that no tax liability could be fixed on Chitty transactions, it being a ‘cash management’. In other words, for the purpose of getting absolved from the tax liability as per the Finance Act 1994, the petitioners accepted their status as ‘cash management’ institutions. But on deletion of the exclusion clause from S. 65(12)(a)(v) by virtue of the amendment in 2007, at least some of the petitioners have taken a ‘U’ turn to contend that, their activity is ‘not cash management’. This can't but be a paradox and this Court can only say that the petitioners are not justified in blowing hot and cold simultaneously.

29. Coming to the actual business being pursued by Chitty establishments like the petitioners, the nature of activity has been discussed in detail by the Apex Court in Shree Ram Chits' case (cited supra), that it belongs to class of its own and the purpose of enactment (Chit Funds Act 1982) was to control and regulate the measures connected therewith. The concept of Chitty, the procuration and disbursement of the fund, nature of liability to effect future installments, rights and liberties of the Foreman to get commi ssion for the service rendered, the dividend distributable among the subscribers, (based on the discount facilitated on prizing the Chits) etc., have been discussed in detail by the Apex Court in ShriraM Chits & Investments Pvt Ltd. v. Union of India (1993 Supp (4) SCC 226 : AIR 1993 SC 2063), pointing out that, it is not a money lending business and that there is ‘no debtor-creditor relationship’ between the Subscriber and the Foreman. Collection of subscriptions from the different subscribers to the common fund, facilitating disbursement of the prized amount and distribution of the dividend after realizing the commission, forms an essential feature of management of the concerned fund. When it is not a loan, but a fund procured in the manner as specified therein to be dealt with, catering to the need of the Subscriber, it essentially is part of management of the fund, though the fund is generated and disbursed without much time gap. This however, cannot tilt the balance in any manner, as to the nature of the fund, more so, when, all the traits and characteristics of ‘fund management’ are very much there.

30. What amounts to ‘fund’ and its ‘management’ in the specific circumstances, came to be considered and dealt with by the Apex Court in Commissioner of Income Tax (Central II), Calcutta v. Duncan Brothers & Co. Ltd., Calcutta ((1996) 8 SCC 31) and in Workmen of National and Grindlays Bank Ltd., v. The National and Grindlays Bank Ltd. ((1976) 1 SCC 925 : AIR 1976 SC 611). The Finance Act 1994 originally provided for imposition of tax in respect of services relating to all forms of fund management except cash management and the exception so given was subsequently withdrawn by deleting the words “but does not include cash management” from the statute book from 2007. The petitioners were never subjected to tax earlier, only by virtue of the exclusion clause under the unamended provision and the position took a turn around, on deletion of the exclusion clause in the year 2007. Even otherwise, when an amendment was made by the law makers deciding to take away the exclusion, the reason is obvious i.e, the concerned institution/transaction is also to be subjected to tax, bringing the same within the taxable net. This is a ‘conscious exercise’ pursued by the law making authority and the provision, by virtue of the amendment, has enabled to have such a course. In other words, it is by virtue of the statutory prescription, on deleting the adverse clause by way of amendment, that the taxability got surfaced, tearing the veil and not by virtue of Ext. P2 Circular (W.P(C) No. 2822/08). In the said circumstances, the taxable instance is not liable to be termed as due to any ‘deemed fiction’. The taxable instance is resulted as per the amended statutory provision, notwithstanding the setting aside of Ext. P2 Circular (W.P(C) No. 2822/08) by the Bench of High Court of Andhra Pradesh and this Court most respectfully disagrees with the finding rendered therein.

31. The nature of contentions raised, argued and dealt with before the High Court of Andhra Pradesh in A.P Federation Chit Funds v. Union of India (2009 (13) STR 350 (A.P)) is more discernible from Paragraphs 5,6,7 and 8 of the said verdict, which are extracted below:

“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 S. 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 S. 65 of the Finance Act, 2007 by way of circular without there being any legislative transanction or statutory basis. Hence, the impugned action is liable to be set aside.

7. Shri.K Rajashekar 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-S.(12) of S. 65 of the Finance Act, 2007 and consequently under the impugned circular issued by the respondents is valid?”

32. From the above, it is evident that the scope of the terms “all forms of fund management” before the deletion of the words “but does not include cash management” and after the deletion vide the amendment in 2007, was not specifically projected or adverted to. The thrust was more with regard to the meaning of the expression ‘cash management’, though the provision was extracted in paragraph 11. The verdict passed by the Apex Court in AIR 1993 SC 2063 (cited supra) was also referred to, extracting the relevant portion in paragraph 10, wherein it was held that:

“the foreman does not lend his money to constitute any money lending business and that the dominant purpose of the Act (Chit Funds Act 1982) was to regulate the chit and control the activity for the foreman and protect the interest of the subscribers which essentially in the realm of fund management.”

33. True, the provisions in a ‘taxation statute’ have to be interpreted strictly, asmade clear by the Apex Court. But when “all sorts of fund management” were sought to be taxed, giving exception only to ‘cash management’ under the unamended provision and when it came to be excluded after the amendment to S.65(12)(a)(v) in the year 2007, this Court finds that, each and every instance of ‘fund management’ need not be separately mentioned in the provision, to attract the tax liability. Even as per the unamended statute, when the exception was only to a limited extent i.e, in respect of ‘cash management’, the deletion of the exception has revived “all forms of fund management” with full vigour and vitality, which cannot be watered down. To put in other words, the term “all forms of fund management” forms the genus, of which, ‘cash management’ is one of the species. The exception given to the specie (cash management) is taken away by deleting the same in the year 2007, after which, all forms of fund management become taxable. It has to be noted that, there is absolutely no challenge against the statutory provision i.e, in respect of the amendment brought about in the year 2007 and this being the position, the tax liability stands governed, not by virtue of the Circular, but by virtue of the amended provision. The idea and understanding of the petitioners to the contrary, is quite wrong and misconceived.

34. The learned counsel for the petitioners submits that the reliance sought to be placed on S. 65(45) of the Finance Act 1994, with reference to the term ‘financial Institution’, to have the same meaning as given under S. 45-I of the R.B.I Act [which takes in the Chitty business as well, under sub clause (c)(v)] is not correct. This is in view of the observation made by the Division Bench of High Court of Andhra Pradesh, that such a provision was already there at the time of the enactment of the Finance Act 1994, till the amendment in the year 2007; despite which there was no case that, Chitty business was taxable, with reference to the said provision. This Court finds that, reference to S. 45(l) of the R.B.I Act, was made only to show that, while enacting the Finance Act 1994 providing imposition of Service Tax, the financial institutions which could be brought into the taxable net as proposed, very much included the Chitty business as well, though no tax liability was fixed till 2007, by virtue of the exclusion clause under S. 65(12)(a)(v). So also, there is nothing wrong on the part of the Board (CBEC) for having obtained clarification from the R.B.I who is a statutory authority created under the R.B.I Act and in view of the pivotal role of the R.B.I in the economic affairs of the country, under the said statute. When a reference is made to S. 45-I of the R.B.I Act, to describe the meaning of the term “financial institution” as given under S. 65(45) of the Finance Act 1994, this Court finds that, there is no much weight in the contention of the petitioners that no tax liability could be introduced in 2007, as S. 45-I of the R.B.I Act was very much there till 2007, despite which no tax liability was fixed upon the petitioners. This is for the obvious reason that, there cannot be any estoppal at all, to the provisions of law.

35. As mentioned hereinbefore, no provision of law is under challenge in any of these Writ Petitions; particularly the amendment brought about to S. 65(12)(a)(v) of the Finance Act 1994, in the year 2007. This being the position, the decisions cited from the part of the respondents, as to the way in which ‘Constitutional validity’ of a provision is to be examined and interpreted and on such other incidental aspects are not necessary, to be considered or dealt with. However, having cited the above decisions, it is worthwhile to have a reference to some of them as well in a different context. It has been made clear by the Apex Court in paragraph 21 of the judgment reported in (1995) 1 SCC 274 (cited supra) that ‘the power to exempt includes the power to modify or withdraw the same’. It has been further observed in paragraph 23, that withdrawal of exemption in “Public Interest” is a matter of policy and Courts would not bind the Government to its policy decisions for all times to come, irrespective of the satisfaction of the Government, that a change in the policy was necessary in “Public Interest”. As observed, Courts do not interfere with the fiscal policy where the Government acts in “Public Interest”.

36. Observations of the Apex Court in The Madurai District Central Co-Operative Bank Ltd. v. The Third Income Tax Officer, Madurai ((1975) 2 SCC 454) with regard to the power and competence to legislate on a particular subject are also very relevant. It is observed in Paragraph 12, that the Income Tax Act 1961 and the Finance Acts are enacted by the Parliament, in exercise of the powers conferred by Art. 246(1), read with Entry 82 of ‘List 1’ of the Seventh Schedule to the Constitution of India. Once the Parliament has the legislative competence to enact a law with respect to a certain subject matter, the limits of that competence cannot be judged further, by the form or manner in which that power is exercised. As such, though it would be unconventional for the Parliament to amend a taxing statute by incorporating the amended provision in an Act of a different pith and substance, such a course would not be unconstitutional. The Court further holds in paragraph 13 that Income Tax Act is a permanent Act, while the Finance Acts are passed every year and their primary purpose is to prescribe the rates at which the Income Tax will be charged under the Income Tax Act. That does not mean that a new and distinct charge cannot be introduced under the Finance Act. Exigencies of the financial year determine the scope and nature of its provision. If the Parliament has the legislative competence to introduce a new charge of tax, it may exercise that power, either by incorporating that charge in the Income Tax Act or by introducing it in the Finance Act or for that matter, in any other statute. The Apex Court observes:

“therefore what is not “income” under the Income Tax Act can be made “income” by a Finance Act, an exemption granted by the Income Tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge”.

37. The Apex Court has observed in paragraph 54 of the decision rendered in T.N Kalyana Mandapam Association v. Union of India in ((2004) 5 SCC 632), that levy of Service tax on a particular kind of service could not be struck down on the ground that, it does not confirm to a common understanding of the word “service”, so long as it does not transgress any specific restriction contained in the Constitution.

38. Some of the petitioners herein have got a contention that their activity in running the Chit funds does not constitute a ‘service’ and that procuration of the fund from the different subscribers, putting it together, sharing the dividend, disbursement of the amount to the prized subscriber after realising the commission payable to the Foreman etc., are only an ‘incidental activity’.If it is an ‘incidental activity’, what else is the ‘main activity’ is not disclosed. The role of the Foreman has already been explained by the Apex Court in 1993 Supp (4) SCC 226 : AIR 1993 SC 2063 (cited supra) and the activity cannot but be declared as a service in the said circumstance, more so, in the light of the definition of the terms, ‘Banking and Financial Institutions under S. 65(12)(a)(v),‘Taxable Service” under 65(105)(ZM) and the reference made to S. 45-I, of the R.B.I Act under S. 65(45) of the Finance Act 1994, defining the term ‘Financial Institution’ as inclusive of ‘Chitty business’ as well, under sub Clause (c)(v).

39. In Ram Krishna Dalmia v. Mr. Justice S.R Tendolkar* (AIR 1958 SC 538), a Constitution Bench of the Supreme Court has held in paragraph 11 that the consistent view taken by the Court is that, a law may be constitutional, even though it relates to a single individual, if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself.

40. In Raja Jagannath Baksh Singh v. State of Uttar Pradesh (AIR 1962 SC 1563) another Constitution Bench of the Apex Court held in paragraph 16 that a taxing statute can be held to contravene Art. 14, if it purports to impose on the same class of property similarly situated, an instance of taxation leading to obvious inequality. It is stated that, it is for the legislature to decide, on what objects to levy and at what rate of tax, and it is not for the Courts to consider whether some other objects should have been taxed or whether a different rate should have been prescribed for tax.

41. In East India Tobacco v. State of Andhra Pradesh (AIR 1962 SC 1733), yet another Constitution Bench of Supreme Court observed in paragraph 4 and 6 that, the State has a wide discretion in selecting the persons or objects to tax and that the statute is not open to attack on the ground that it taxes only some persons or objects and not others and that a State does not have to tax everything, in order to tax something.

42. In The Twyford Tea Co. Ltd. v. Kerala State (1970 KLT 181 (SC) : (1970) 1 SCC 189 : AIR 1970 SC 1133) the observations of the Constitution Bench are to the effect that the burden of proving discrimination is always heavy and heavier still, when a taxing statute is under attack. Applying the principle approved by the Court in AIR 1962 SC 1733 (cited supra), the Court observed that, if a State can validly pick and choose one commodity for taxation and that is not open to be attacked under Article 14. the same result must follow, when the State picks out one category of goods and subjects it to taxation. In R.K Garg v. Union of India ((1981) 4 SCC 675), another Constitution Bench of the Apex Court held in paragraph 7 that, there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it, to show that there has been a clear transgression of the Constitutional principles. Another rule of equal importance, as made clear by the Court is that, laws relating the economic activities should be viewed with greater latitude than laws touching civil rights; such as freedom of speech, religion etc. (paragraph 8). Quoting Holmes J., the Apex Court observed that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket-formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The scope of interference especially with regard to taxing laws has been explained by another Constitution Bench of the Apex Court in Federation of Hotel & Restaurant v. Union of India ((1989) 3 SCC 634) more particularly in paragraphs 46, 47 and 48. In Karnataka Bank Ltd. v. State of Andhra Pradesh ((2008) 2 SCC 254), it has been held that, any interpretation which renders a legislation unconstitutional, is to be avoided.

43. In the above facts and circumstances, this Court finds it difficult to agree with the proposition mooted by the petitioners in these Writ Petitions and most respectfully disagrees with the view expressed by the Division Bench of the High Court of Andhra Pradesh in 2009 (13) STR 350 (A.P) (cited supra). This Court holds that the Writ Petitions are devoid of any merit and all these cases are dismissed accordingly.