TMI Blog2020 (4) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of those contracts which are covered by the six sub-clauses of clause (29A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying, was reiterated by the Apex Court in M/s Pro. Lab s case - the finding of the Tribunal that in Bharat Sanchar Nigam Limited s case, the Apex Court has only given the passing remarks and did not overrule either C.K. Jidheesh [ 2005 (10) TMI 3 - SUPREME COURT ] or Rainbow Colour Lab and Another vs. State of Madhya Pradesh and others, [ 2000 (2) TMI 2 - SUPREME COURT ], is unsustainable. Whether appellants having once paid the VAT under the State Act as works contractor on the material and chemicals consumed in photography service, can be charged service tax on the same value? - HELD THAT:- In view of the law laid down by the Apex Court in M/s Pro. Lab s case, it can be safely held that photography service, which has both the elements of goods and services is covered under works contract. Thus, in a works contract which involves transfer of property, the provisions as contained in Article 366(29A) of the Constitution are attracted. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.12/03-ST dated 20.06.2003, is to be given the same meaning as given by Section 2(h) of the Central Excise Act, 1944, read with Section 65(121) of the Finance Act, 1994 or this term would also include the deemed sale as defined by Article 366(29A)(b) of the Constitution? However, for the convenience sake, the facts are being extracted from CEA No.1/2013. 2. The appellant is engaged in the business of processing, printing and exposure of colour photographic film and obtained service tax registration for providing service on photography as provided under Section 65(63) of the Service Tax Chapter V of Finance Act, 1994 (for short the Finance Act ) made applicable to service tax w.e.f. 16.07.2001. During the scrutiny of ST-3 returns, it was found that the appellant had not paid the service tax correctly. In reply to the notice, the appellant informed the Superintendent, Central Excise, Service Tax that it was paying service tax on 30% of the value of the invoices raised on account of service rendered to the customers and that the value of photography paper and processing chemicals used by it in developing of photographic films should be allowed to be deducted for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Colour, Advance Photo System Russel Chouk, Jabalpur is engaged in Photographic Service on which Service Tax was levied w.e.f. 16/07/2001. I observed that on this issue number of show cause notices have been issued. This issue has also been raised in the Supreme Court in the writ petition (civil) No.507 of 2002 (C.K. Jidheesh V/S U.O.I.) The honourable Supreme Court has turned down the petitioner s prayer for an order directing the Respondent to bifurcate the gross receipts or processing of photographs into the portion attributable to goods that attributable to services. The petitioner claims that the respondent must tax only that portion of the receipts which is attributable to the services rendered. The Supreme Court has also held that contracts of the type entered into by persons like the petitioner are nothing else but services contracts pure simple. It is held that in such contracts there is no element of sale of goods. In the light of the Supreme Court judgment the noticee s submission that they are correctly paying service tax is not correct. After considering every aspect of the case and respectfully following the Supreme Court s judgment I pass the following order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of providing the services. 11. The appellant, at the time of filing appeal against the Order-in-Original passed by the Divisional Assistant Commissioner, has raised a new ground that he is not providing any photography services, rather he is manufacturing excisable goods falling under chapter 37 chapter heading 49.11 of the Central Excise Tariff Act, 1985. The short point to be decided here is that whether the activity of photographing persons/subjects, processing developing of photographic films and printing of photographs etc. amounts to providing photography services under Section 65(78) of the Finance Act, 1994. The point raised by the appellant at this stage, about him being the manufacturer of excisable goods, is neither material here nor the subject matter of the present proceedings. In any case, this new point raised by the appellant at the appellate stage should be viewed in the background of the dismissal of his writ petition by the Honourable High Court of Jabalpur, as also the categorical decision of the Honourable Supreme Court mentioned in para supra. Under Section 35A of the Central Excise Act, 1944, I therefore, find this new ground of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 11.08.2011 (Annexure A-5) and held that unless documentary proof indicating the value of goods and material is submitted, the benefit of the Notification would not be available to the assessee. The burden of proof was on the assessee to establish the value of the goods and material. The Larger Bench while answering the questions referred to it, came to the conclusion that the gross value of service rendered is liable to service tax, as no amount is paid separately for photography service and the goods used and consumed in providing such taxable service. The relevant findings read as under:- 21. Service tax law is not the law relating to commodity taxation. The Notification in question issued under that law seeks to achieve that end by exempting value of goods sold while providing taxable service. There is no doubt that papers, consumables and chemicals are used and consumed to bring photographs into existence. It is also quite true that no service recipient goes to a photography service provider to buy paper, chemicals and other photography materials. What the service recipient expects from the photography service provider is the photograph. No consideration is paid sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding cost of goods and material used and consumed in the course of rendering such service. The cost of unexposed film etc., would stand excluded in terms of Explanation to section 67 if sold to the client. (ii) The value of other goods and material, if sold separately would be excluded under exemption Notification No.12/2003 and the term sold appearing thereunder has to be interpreted using the definition of sale in the Central Excise Act, 1944 and not as per the meaning of deemed sale under Article 366(29A)(b) of the Constitution. 23. On the aforesaid analysis of the legal position it can be said that determination of value of taxable service of photography depends on the facts and circumstances of each case as the Finance Act, 1994 does not intend taxation of goods and materials sold in the course of providing all the taxable services. In view whereof, the appeal of the appellant was also dismissed vide impugned order dated 07.06.2012 (Annexure A-6), however, the penalty was set aside. In this manner, the present appeals have been preferred by the appellants. 5. Learned counsel for the appellants submitted that the value of photography paper and processing che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of photographs to the customers which are prepared with the photography paper upon which an image is printed using certain consumables and chemicals etc. constitutes a deemed sale for the purposes of exemption under Notification No.12/2003. It was also the contention of the learned counsel that the intention to sell can be gathered from the invoices wherein the appellant has charged price of material and consumables and has paid VAT on the same. On this ground, it was the stand of the appellant that the finding recorded by the Tribunal that material and consumables embedded in the photographs given to the customer are consumed by them without transfer of possession of material and consumables for some consideration, is perverse. Lastly, it was projected that since the photography involves the processing activity, therefore, it is a works contract. There is an element of both sale and service in photography, thus, service tax would not be leviable on sale portion. In this regard, heavy reliance was placed upon the Apex Court decisions in Bharat Sanchar Nigam Limited (supra), Gujarat Ambuja Cements Ltd. vs. Union of India and others, (2005) 4 SCC 214 and Imagic Creative P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T dated 20.06.2003. In order to appreciate the said controversy, it would be expedient to reproduce the relevant portion of the circular, which reads as under:- Notification No.12/2003-ST, dated 20-6-2003. In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials. Provided that the said exemption shall apply only in such cases where- (a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or (b) where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials. Perhaps there had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the word sale in Notification would not cover deemed sale under Article 366(29A) of the Constitution and it is of no relevance inasmuch as Notification does not override statutory provision. The Larger Bench was in agreement with the said view when it held that expression sold in the Notification would not include deemed sale of goods and material consumed by the service provider while generating and providing service, unless an assessee has discharged burden of proof adducing evidence showing value of goods and material actually sold and satisfied the conditions of Notification. However, the Larger Bench opined that value of taxable service of photography depends on the facts and circumstances of each case as the Finance Act does not intend taxation of goods and materials sold in the course of providing all the taxable services. 12. There is no dispute to the proposition that the Notification does not override the statutory provision and hence, it is required to be seen as to whether the conclusion drawn by the Tribunal that term sold appearing in Notification has to be interpreted using the definition of sale in the Central Excise Act, 1944 and not as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for consideration by one person to another. Section 2(h) of the Act is reproduced as under:- 2(h) sale and purchase , with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration; 14. According to the learned counsel for the appellants, the material and consumables are embedded in the photograph when it is transferred to the customers. The Larger Bench of the Tribunal erroneously held that the consumables and chemicals used for providing such service disappear when the photograph emerges and concluded that value of photography service includes all elements which bring that to the deliverable stage. As noticed earlier, the stand of the appellants is that under sub-clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of works contract, the tax which is paid on the sale or purchase of goods should be on the transfer of property in goods only. The photograph is completed through developing and printing process by using the consumables and chemicals, which are the essential ingre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service, which will amount to a Works Contract . 19. In view of the above, the argument of the respondent assessees that Associated Cement Companies Ltd. vs. Commissioner of Customs, (2001) 4 SCC 593, (ACC Ltd. case) did not over-rule Rainbow Colour Lab's case (supra) is, therefore, clearly misconceived. In fact, we are not saying so for the first time as a three member Bench of this Court in M/s Larsen and Toubro and Another vs. State of Karnataka and another (2014) 1 SCC 708 has already stated that ACC Ltd. had expressly over-ruled Rainbow Colour Lab while holding that dominant intention test was no longer good test after 46th Constitutional Amendment. We may point out that learned counsel for the respondent assessees took courage to advance such an argument emboldened by certain observations made by two member Bench in the case of C.K. Jidheesh v. Union of India, wherein the Court has remarked that the observations in ACC Ltd. were merely obiter. In Jidheesh, however, the Court did not notice that this very argument had been rejected earlier in Bharat Sanchar Nigam Ltd. v. Union of India (2006) 3 SCC 1. Following discussion in Bharat Sanchar is amply demonstrative of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... good law, Rainbow Colour Lab (supra) has been expressly overruled by a three Judge Bench in Associated Cement. 65. Although, in Bharat Sanchar, the Court was concerned with Sub-clause (d) of Clause 29A of Article 366 but while dealing with the question as to whether the nature of transaction by which mobile phone connections are enjoyed is a sale or service or both, the three-Judge Bench did consider the scope of definition in Clause 29A of Article 366. With reference to Subclause (b) it said: Sub-clause (b) covers cases relating to works contract. This was the particular fact situation which the Court was faced with in Gannon Dunkerley-I (State of Madras vs. Gannon Dunkerley Co., AIR 1958 SC 560) and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley-I was directly overcome . It then went on to say that all the Sub-clauses of Article 366 (29A) serve to bring transactions where essential ingredients of a 'sale' as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into one for sale of goods and the other for supply of labour and services; (iii) in view of Sub- clause (b) of Clause 29A of Article 366, the State legislatures are competent to impose tax on the transfer of property in goods involved in the execution of works contract. Under Article 286(3)(b), Parliament has been empowered to make a law specifying restrictions and conditions in regard to the system of levy, rates or incidents of such tax. This does not mean that the legislative power of the State cannot be exercised till the enactment of the law under Article 286(3)(b) by the Parliament. It only means that in the event of law having been made by Parliament under Article 286(3)(b), the exercise of the legislative power of the State under Entry 54 in List II to impose tax of the nature referred to in Sub-clauses (b), (c) and (d) of Clause (29A) of Article 366 would be subject to restrictions and conditions in regard to the system of levy, rates and other incidents of tax contained in the said law; (iv) while enacting law imposing a tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29A)(b), it is permissible for the State legislature to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one for sale of goods and other for services , thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause 29-A of Article 366, the State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. It may be noted that Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject. 22. Keeping in mind the aforesaid principle of law, the obvious conclusion would be that Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have goods component exigible to sales tax is constitutionally valid. Mr. Patil and Mr. Salman Khurshid, learned senior counsel who argued for these assessees/respondents, made vehement plea to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t specifically pointed out that Kame's case would not provide an answer to the issue at hand. On the contrary, legal position stands settled by the Constitution Bench of this Court in Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu and Ors. (2014) 7 SCC 1. Following observations in that case are apt for this purpose: On the basis of the aforesaid elucidation, it has been deduced that a transfer of property in goods under Clause (29A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a Works Contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. One thing is significant to note that in Larsen and Toubro (supra), it has been stated that after the constitutional amendment, the narrow meaning given to the term works contract in Gannon Dunkerley-I (supra) no longer survives at present. It has been observed in the said case that even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70% was denied by the Commissioner and demand of service tax was confirmed on the assessee along with interest and penalty. The appeal preferred by the assessee was considered and decided by a three-member Special Bench of the Tribunal reported as Safety Retreading Company (P) Ltd. vs. Commissioner of Central Excise, Salem (2012) 34 STT 64 (Chennai), wherein coupled with the Notification No.12/2003-ST dated 20.06.2003 a similar issue was considered by the Larger Bench of the Tribunal: whether in a contract for retreading of tyres, service tax is leviable on the total amount charged for retreading including the value of the materials/goods that have been used and sold in the execution of the contract or exemption to material component therein can be granted . The question was whether maintenance and repair service can be treated as service under works contract for service tax purposes. The Appellate Tribunal by majority view, upheld the demand, inter alia, on the ground that maintenance and repair service being a specific service is to be treated as service under works contract for service tax purposes. On appeal, the Apex Court set aside the said majority view of the Special ..... X X X X Extracts X X X X X X X X Extracts X X X X
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