In Brief
The Union of India appealed against a High Court judgment quashing a 2007 circular that sought to impose service tax on chit funds as 'banking and other financial services' under the Finance Act, 1994. The Supreme Court held that chit fund business is neither cash management nor fund management, and therefore does not fall under the definition of 'asset management' even after the 2007 deletion of the cash management exclusion. The Court analyzed cash management as managing surplus cash for liquidity and returns, which chit funds do not undertake. Chit funds are contractual arrangements where subscribers make periodic contributions and receive funds via lottery or auction—fundamentally different from professional asset/fund management. The appeals were dismissed and the High Court's decision upheld.
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