By Puloma Dalal, Jayesh Gogri, Chartered Accountants
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Whether services provided in relation to conducting a chit business is a taxable service u/s. 65B(44) of the Finance Act, 1994 inserted with effect from 1st July, 2012 ?
Facts: The appellant, an association of chit fund companies based in Delhi operating under the Chit Funds Act, 1982. Notification No.26/2012-ST dated 20-06-2012 issued by the Government exempted services provided in relation to chit to the extent of 70% subject to the conditions as specified.
The appellant pleaded to quash the said notification in so far as it sought to subject the activities of business of chit fund companies to the levy of service tax to the extent of 30% of the consideration received for the services when the law itself provides that such services were not taxable at all in the first place and they contented that vide Explanation 2 to section 65B(44), the consideration charged for services of foreman in chit business, are also excluded from the charge of service tax. Further, the explanation provided in the Education Guide issued by the CBEC at para 2.8.2. also was not correct having regards to the proper interpretation of the statutory provisions.
Held:
Allowing the appeal, it was held that the function of an Explanation was to explain the meaning and effect of the main provision and to clear up any doubt or ambiguity in it. It’s the intention of the legislature which was paramount and a mere use of a label cannot control or deflect such a function. Any ambiguity or doubt in the interpretation of the exclusionary part of the definition of the “service” gets cleared up on a careful examination of the implications of Explanation 2. This Explanation was enacted only “for the purposes of this clause” and since it was placed below clause (c), strictly speaking it was relevant only for the purpose of the aforesaid clause. Further, the answer given at para 2.8.2. of the Education guide was also not correct having regards to the proper interpretation of the statutory provision. Hence, no service tax was chargeable on the service rendered by the foreman in a business of chit fund.
