UNION OF INDIA & ORS. versus M/S. MARGADARSHI CHIT FUNDS (P) LTD. ETC.

Citation: [2017] 7 S.C.R. 375 · Decided: 04-07-2017 · Supreme Court of India · Bench: A.K. SIKRI · Disposal: Dismissed

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Judgment (excerpt)

[2017] 7 S.C.R. 375 
UNION OF INDIA & ORS. 
v. 
MIS. MARGADARSHI CHIT FUNDS (P) LTD. ETC. 
(Civil Appeal Nos. 5724-5725 of 2011) 
JULY04,2017 
(A. K. SIKRI AND R. K. AGRAWAL, JJ.j 
Service Tax - Historical background of service tax on banking 
and other financial services - Discussed. 
A 
B 
Finance Act, 1974 - s.65(12)(a)(v) - Cash/Fund Management 
C 
- Service tax on chit fund w.e.f 1 June 2007, the date on which 
Finance Act, 2007 came into effect - Exigibility of - Whether Chit 
Fund business means cash management or fund management and 
therefore fall within the definition of banking and other financial 
services in terms of s. 65(12)(a)(v) - Held: Jn common parlance as 
D 
well as in banking field, cash management is understood as 
managing the surplus cash of a person or a company - Cash 
management, thus, deals with optimisation of cash as an asset and 
for this purpose various decisions are to be taken for proper 
management thereof - Therefore, insofar as activity of chit fund is 
concerned, it does not amount to cash management - Also Chit 
E 
fund cannot be treated as fund management as understood in 
business parlance - Therefore, the chit fund business is not covered 
by sub-clause (v) of sub-section 12 of s.65 even after its amendment 
by Finance Act, 2007 - Finance Act, 2007 - s.65(12)(a)(v) - Chit 
Fund Act, 1982 - s.2(b) - Reserve Bank of India, 1954 - s.45-J(c) 
- Service Tax. 
Dismissing the appeals, the Court 
HELD: 1. Right from 1994 till 2011, the mode adopted was 
F 
to specify those services on which it was intended to levy service 
tax. However, the Parliament by the Finance Act, 2012 w.e.f. July 
G 
01, 2012 has introduced althogether new system of taxation of 
services by making a paradigm shift. Now, the scheme of taxation 
of services is based on negative list of services. (Para 151(390-
E-FJ 
2. Whether chit fund activity can be treated as business of H 
375 
376 
SUPREME COURT REPORTS 
[2017] 7 S.C.R. 
A cash management?[397-D) 
In common parlance as well as in banking field, cash 
management is understood as managing the surplus cash of a 
person or a company. Thus, whenever a person is having idle 
cash or unrealised dues and wants the same to be utilised in a 
B proper and fruitful manner, managing the said idle cash would 
amount to cash management. These are the services generally 
offered by the banking institutions to their clients. In business 
management, this aspect is studied with a specific focus in mind. 
It is accepted as a reality that one of the most important factors 
for failure of business firms is the shortage of working capital 
C which emerges due to lack of attention to proper management of 
current assets i.e. cash, inventories, receivables etc. An efficient 
management of these current assets can not only reduce the risk 
of financial distress but can also make a positive contribution to 
the profit of the firm. Therefore, need is felt to properly manage 
D the aforesaid current assets which include cash as well. In this 
sense, cash management refers to management of cash balance 
and the bank balance including the short terms deposits. The 
cash is obviously the most important current assets, as it is the 
most liquid and can be used to make immediate payments. 
E 
F 
Insufficiency of cash at any stage may prevent a firm from 
discharging its liabilities or force it to sell its other assets 
immediately. On the other hand, extreme liquidity may take the 
firm to make uneconomic investments. This underlines the 
significance of cash management. The term cash is generally used 
in two different ways: One, it may include currency, cheques, 
drafts, demand deposits held by a firm i.e., pure cash or generally 
accepted cash equivalents. Second, and in a broader sense, it 
also includes near cash assets such as marketable securities and 
short term deposits with banks. For cash management purposes, 
the term cash is used in this broader sense i.e., it covers cash, 
cash equivalents and those assets which are immediately 
G convertible into cash. In that sense, managing the cash, which is 
crucial for any business, becomes a challenge, namely, to see as 
to how much cash is to be held which may be required for day to 
day liquidity/expenses and how the surplus cash is to be invested 
in order to have some return thereupon in the form of interest or 
H 
UNION OF INDIA v. MIS. MARGADARSHI CHIT FUNDS (P) LTD. 
377 
otherwise. Thus, finance manager is required to manage

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