A two-judge bench of the Supreme Court in Union of India & Ors v. M/S. Margadarshi Chit Funds (P) Ltd. etc, categorically held that the chit fund business are not subject to service tax as it was not covered by sub-clause (v) of sub-section 12 of Section 65 after its amendment by Finance Act, 2007. The respondent-assessees, in the instant case, impugned the departmental circular No. 96/7/2007-ST dated August 23, 2007 wherein it was stated that service tax is payable on the running of chit funds as it was a service provided by the assessees which was covered under ‘banking and other financial services’. The Andhra High Court accepted their plea that the chit fund business does not amount to any service covered by the definition of ‘banking and other financial services’ as per the said term as defined in that provision, prevalent during the relevant period. Coming to the legislative history, the bench noted that when the definition of ‘banking and other financial services’ was incorporated to the Act, services of cash management was specifically excluded from it. However, in the year 2007, the definition was amended by deleting the words ‘but does not include cash management’. The department was of the view that managing chit fund, which is a fund management service, is a specie of cash management. It contended that sub-clause (v) of sub-section (12) specifically covers ‘asset management’ as ‘banking and other financial services’ and categorically mentions that ‘all forms of fund management’ are to be treated as ‘asset management’. According to them, since asset management includes all forms of fund management and as the cash management is one of the form of ‘fund management’, chit fund companies would be covered thereby. It was therefore, said that service tax is payable on such service w.e.f 1st June 2007. The department further relied on a recent decision of the Kerala High Court in the case of All Kerala Association of Chit Funds v. Union of India wherein the High Court refused accept the findings of the Andhra Pradesh High Court in the above case and observed that cash management is one of the forms of fund management and would, therefore, be covered by the expression ‘asset management’.