IMPORTANT POINT
Interest collected by chit foremen from defaulting subscribers is not subject to GST as it does not represent consideration for supply of services.

JUDGMENT :

The petitioner is a company incorporated under the Companies Act, 1956, and is wholly owned by the Government of Kerala. It is primarily engaged in the business of conducting chits. It is before this Court challenging Ext.P1 show cause notice dated 21-04-2022 interaliacalling upon the petitioner to show cause as to why Goods and Services Tax (GST) amounting to Rs.61,55,21,173/-(Rupees Sixty-one Crores Fifty-five Lakhs Twenty-one Thousand one Hundred Seventy-three only) should not be demanded and recovered under the provisions of Section 74 of the Central Goods and Services Tax/State Goods and Services Tax Acts, 2017, (CGST/SGST Acts), as to why interest should not be demanded on the aforesaid sum and as to why penalty should not be imposed in terms of the provisions contained in the CGST/SGST Acts for violation of the provisions of the law.

2. According to the petitioner, Ext.P1 show cause notice is clearly without jurisdiction and is liable to be quashed in the exercise of the jurisdiction vested in this Court under Article 226 of the Constitution of India. Though Exts. P5 to P8 notifications are challenged, it is submitted for the petitioner that the challenge to those notifications is presently not pressed. There is a further challenge to Ext.P9 notification which relates to the rate of GST for commission received in terms of the provisions contained in Section 21(1)(b) of the Chit Funds Act, 1982 (hereinafter referred to as the 1982 Act'). It is submitted that the said challenge also need not be considered now and can be left open for consideration.

3. Sri. V Raghuraman, the learned Senior Counsel appearing for the petitioner, on the instructions of Adv. K. S. Bharathan would submit that Ext.P1 show cause notice has been issued on the sole basis that interest received/interest collected by the petitioner from defaulting subscribers to a chit should also be the subject matter of a charge of GST under the CGST/SGST Acts. It is submitted that the provisions of the 1982 Act which permits a company engaged in the business of conducting chits to collect interest were the subject matter of the decision of the Supreme Court in Oriental Kuries Limited. v. Lissa and Others; (2019) 19 SCC 732,where it was categorically held that the relationship between a chit subscriber and a chit foreman is a contractual obligation which creates a debt on the day of subscription. On default taking place, the foreman is entitled to recover the consolidated amount of future subscriptions from the defaulting subscriber in a lump sum. It is submitted that from the decision of the Supreme Court, it is clear that the relationship between the foreman and the chit subscriber is akin to that of a debtor-creditor and therefore even if the transaction could be classified as 'services' for the purposes of the CGST/SGST Acts, vide the entry at Sl.No.27 of Notification No.12/2017-Central Tax (Rate) dated 28-06-2017 the rate of tax on transactions by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) would be nil. It is submitted that a reading of the judgment of the Supreme Court in Oriental Kuries Limited (Supra) with the terms of the notification referred to above will clearly indicate that any amount received by the petitioner as interest from defaulting subscribers (whether prized or non-prized) would not be liable to GST. The learned Senior Counsel appearing for the petitioner referred to the provisions of Sections 21 and 22 of the 1982 Act as well as to the provisions of the Kerala Chit Funds Rules, 2012, to apprise this Court of the scheme under which a chit is conducted. The learned Senior Counsel referred to the provisions of Section 15(2) of the CGST/SGST Acts to point out that it is only when interest is received on the consideration received for supply (of either goods or services) would such amount be included in the