TMI Blog2010 (5) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... ing service not charges nature and measure of tax. Sale of goods not involved in photography service. cost of paper, chemical and consumables includible in taxable value for service tax. - referred to Larger bench - ST/301-303/2006 and 437/2009 - ST/48/2010(PB), - Dated:- 25-5-2010 - S/Shri D.N. Panda, Member (J) and Rakesh Kumar, Member (T) S/Shri B.L. Narsimhan and S. Malhotra , Advocates, for the Appellant. S/Shri Vijay Kumar and Sunil Kumar, DRs, for the Respondent. [Order per : Rakesh Kumar, Member (T)]. - The Appellants in appeal No. ST/301, 302 303 of 2006 and the Respondent in Revenue's appeal No. ST/439 of 2009 are engaged in the activity of photography i.e. exposure of colour photography film, its processing and making colour photograph. Since 16-7-01, under Section 65(105)(zb) read with Section 65(78) of the Finance Act, 1994, the services provided to any person by a photography studio or agency in relation to photography, in any manner, attracts service tax at the rate prescribed under Section 66 ibid. The period of dispute in all these four appeals is the period prior to 18-4-06. 1.1 The "service in relation to photography" involves - (a) taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llants have filed these appeals against the CCE (Appeals)'s, orders in appeal. In case of the Appeal No. ST/437 of 2009, this dispute was decided by CCE (Appeals), Chandigarh against the Department and this appeal has been filed by the Department against the CCE (Appeals)'s order. 2. Heard both the sides. 2.1 Shri B.L. Narsimhan, Advocate, the learned Counsel representing M/s. Agrawal Colour Photo System, M/s. Agrawal Colour Advance Photo System and M/s. Agrawal Colour Quick System, and Shri S. Malhotra, Advocate, the learned counsel representing M/s. Gurdev Photo Colour, made the following submissions. (1) Section 67 of the Finance Act, 1994 provides that the value of any taxable service is the gross amount charged by the service provider for the service provided by him. Hence for the service tax purpose, the value of 'photography service' can only be that which relates to the service element of photography and it would not include the cost of materials used in rendering of the 'photography service'. (2) Photography service involves supply of materials and rendering of service. Therefore it is a work contract. In case of M/s. Agrawal Colour Quick System, the Hon'ble M.P. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raphy service is pure service, which cannot be vivisected to subject the value of the goods/materials used in providing the service, to Sales Tax; and (ii) C.K. Jidheesh v. UOI [2006 (1) S.T.R. 3 (S.C.)], wherein relying upon the judgment in Rainbow Colour Lab v. State of M.P. (supra) Hon'ble Supreme Court upheld charging of service tax on gross amount charged by the service provider, have been doubted by a Larger Bench of Hon'ble Supreme Court in case of BSNL v. UOI [2006 (2) S.T.R. 161 (S.C.)] (para 46, 47, 48 and 49 of the judgment). Tribunal, in its judgment in case of Delux Colour Lab Pvt. Ltd. Others v. CCE, Jaipur Others [2009 (13) S.T.R. 605 (Tri.-Del.) = 2008 - TIOL -1838 - CESTAT (Del.)], relying upon Hon'ble Supreme Court's observation in para 46, 47, 48 and 49 of its judgment in case of BSNL v. UOI (supra) and also relying upon Hon'ble Supreme Court's judgment in case of Imagic Creative Pvt. Ltd. v. CST reported in 2008 (9) S.T.R. 337 (S.C.) = 2008 TIOL -04-SC- VAT, has held that - (i) photography is a works contract in which the deemed sale of goods/material used are chargeable to sales tax and (ii) since service tax and sales tax cannot exist in the same box, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution of India. In this group of appeals, the levy of service tax is not in dispute - the dispute is over valuation which was not dealt with in the case of Kerala Colour Lab Association, as this was not the issue before the Hon'ble High Court. (11) Definition of photography service, as given in the Finance Act, 1994, cannot be considered in isolation. Since in view of Hon'ble Supreme Court's judgment in case of BSNL v. UOI and of various High Courts, photography is a composite contract of sale and service i.e. a work contract, the sale portion of which is liable to sales tax, the service tax can be charged only on the value excluding the value of the goods used/sold in course of providing this service. Hon'ble Supreme Court in case of Gujarat Ambuja Cement Ltd. v. UOI [2005 (182) E.L.T. 33 (S.C.) = (2005) 4 SCC 214] has held that the mutual exclusivity which has been reflected in Article 246(1), means that taxing entries must be construed so as to maintain exclusivity. (12) In case of the Revenue's appeal No. ST/437/09, it was pleaded on behalf of the Respondents that since there was no suppression of facts, mis-statements etc., the longer limitation period was not avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held that when a photographer undertakes to take photograph, develop the negative, do other processing and supply prints to the client, he cannot be said to have entered into a contract for sale of goods, that the contract is, on the contrary, for use of skill and labour by the photographer to bring about a desired result. Hon'ble Rajasthan High Court in case of Western Rajasthan Colour Lab Association v. UOI [2008 (9) S.T.R. 351] relying on Hon'ble Supreme Court's judgment in Rainbow Colour Lab case (surpa) held that photography is nothing but service contract pure and simple. Hon'ble Kerala High Court in case of Bavens v. UOI and others [1995 (97) STC 161] held that in photography, no basic goods are provided by the customer which are subjected to further processing etc. by the photographer so as to make the contract, a work contract, that there is no accretion of goods to the property or nucleus of a property belonging to the customers, that no work contract is involved in a photographer's activity and that if any property passes to the customer in form of photographic paper, it is only incidental to the service contract and no portion of the turnover of a photographer to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than the exclusion of the value of unexposed film, no other exclusion is provided in Section 67. Therefore, there is no scope for excluding the value of the goods not materials used, also from the gross amount charged. The vires of this section has not been challenged. (6) Tribunal's judgment in case of Delux Colour Lab Pvt. Ltd. and others v. CCE, Jaipur others (supra) is based on certain observations of Hon'ble Supreme Court in para 46, 47, 48 and 49 of its judgment in case of BSNL v. UOI (supra) doubting the correctness of the Apex Courts judgments in the cases of State of M.P. v. Rainbow Colour Lab (supra) and CK Jidheesh v. UOI (supra), which are in the nature of obiter dicta, having no connection with the main issue involved in that case. Hon'ble Bombay High Court in case of Ulhas Oil and Chemical Indus. P. Ltd. v. HM Singh [1988 (36) E.L.T. 462 (Bom.)] has held that the observations pertaining to a point which is not necessary for determination of a case are casual observations and the same cannot have any effect as a precedent. Same view has been expressed by Hon'ble Bombay High Court in case of Wipro Products Ltd. v. UOI [1981 (8) E.L.T. 531 (Bom.)]. (7) Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice are pre - BSNL judgments; and (5) the Tribunal's judgment with regard to the question of binding precedent of summary dismissal of civil appeal, in case of S. Kumar v. CCE [203 (153) E.L.T. 217] is a Larger Bench judgment and if this bench takes a different view on this issue, the matter must be referred to full bench. 2.4 Since after hearing of this matter on 28-7-09 and 20-8-09, the order could not be pronounced within three months, the matter was re-listed and was heard again on 8-1-2010, when Shri B.L. Narsimhan, Advocate for the Appellants in appeal No. ST/301 to 303 of 2006 and Shri Sunil Kumar, the learned DR, for the Respondent in these appeals appeared and both the sides reiterated the oral as well as written submissions made at the time of hearing of this matter on 28-7-09 and 20-8-09. 3. We have carefully considered the submissions from both the sides and perused the records. There is no dispute that the activity of the Appellants in appeals No. ST/301, 302 and 303 of 2006 and of the respondent in appeal No. ST/437 of 2009 is a service taxable under Section 65(105)(zb) read with Section 65(78) of the Finance Act, 1994. The dispute is only about the valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a refrigerator whose selling price may also include the price for after sale service during the warranty period. Tax on sale or purchase of goods is levied by the State Governments under entry No. 54 List-II of the 7th Schedule to the Constitution. Prior to the 46th Constitutional amendment, in view of Hon'ble Supreme Court's judgment in the case of State of Madras v. Gannon Dunkerley [2002 TIOL 103 SC - CT] and State of Punjab v. Associated Hotels of India Ltd. [2002 TIOL 65 S.C. - CT] wherein it was held that there is no sale of goods involved when a building contractor constructs a building for his client or a hotelier while providing lodging facility to his guest in his hotel, also provides meal to his guests during their stay in the hotel, as the transfer of property in goods involved in these transactions is not 'sale' within the meaning of this term, as defined in sale of goods Act, 1930. To enable the State Governments to tax transfer of property in goods involved in course of providing services, 46th Constitutional amendment was made by which Clause 29A was added to Article 366, containing definition of "tax on sale or purchase of goods" which includes among others - (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent. However, three member bench of the Supreme Court in the case of BSNL v. UOI (supra), while considering the question as to whether any transfer of right to use any goods is involved in telephone connection provided by BSNL to its subscribers, which could be subjected to sales tax, in para 46, 47, 48 49 of the judgment, doubted the correctness of the judgment in the case of Rainbow Colour Lab (supra). 4.3 It will be seen that in various judgments of the High Courts and Hon'ble Supreme Court, relating to sales tax on works contracts, the question as to whether a particular contract is a work contract whether divisible, was in the context of charging sales tax on the goods component involved in execution of works contracts. But such question, in our view may not be so material for the purpose of charging service tax under Finance Act, 1994 where service element is dominant consideration for the purpose of levy and determining assessable value of taxable service thereunder. Certain services, involved in a 'work contract' referred to in Article 366(29A)(b) of the Constitution still remain to be service and if that is declared to be taxable service under Section 65(105) of the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay also be for providing the service of contractor for installation, erection and commissioning of a plant, or for procurement of the machinery to be erected installed and commissioned. Similarly a contract may require a photographer to supply the photographs along with an album. Besides the goods, being used for rendering of a service, the process of rendering service may also require some input services. A service provider would charge from his client, a gross amount, which besides his labour/skill used, would also include the cost of the goods and services used for providing the service and also the cost of the goods supplied (called supply item). While providing the service - the value of the supply items, as per the contract term, may be charged separately, in which case, the contract would be a split contract - one for sale of goods and the other for service or may be included in the gross amount charged (e.g. a per meter rate including the cost of pipeline and other material and labour cost charged by a contractor for laying a pipeline or a per square foot rate charged by a contractor for flooring which includes the cost of tiles). The point of dispute is as to whether for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice or repair of motor cars, light motor vehicle or two wheeled motor vehicles ; (iv) the airfare collected by air travel agent in respect of service provided by him; (v) the rail fare collected by rail travel agent in respect of service provided by him; (vi) the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service [x x x] [(vii) the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation service; and (viii) interest on loans.] [Explanation 2. - Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged.] [Explanation 3. - For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.]" 5.2.1 Though w.e.f. 18-4-06, old Section 67 was replaced by a new Section 67 read with Service Tax (Determination of Value) Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court, in the cases of- (a) J.K. Cotton Spinning Weaving Mills Co. Ltd. v. State of U.P. [AIR 1961 S.C. 1170] (b) Ramphal Kundu v. Kamal Sharma [AIR 2004 SC 1039]; (c) UOI v. Hansoli Devi [AIR 2002 S.C. 3240] and (d) Promoters Builders Association of Pune v. Pune Municipal Corporation [AIR 2007 S.C. 1956], has held that the courts always presume that the legislature inserted every part thereof for a purpose and the legislature's intention is that every part of a statute should have effect and that a construction which results in redundancy of some part of a statute, must not be accepted, except for compelling reasons. The appellants/respondents in this group of appeals did not show as to how charging service tax on gross value of photography service shall be against the intention of the legislature as expressed in Chapter V of the Finance Act, 1994. On the contrary, from the exemption Notification No. 12/03-S.T. which exempts from service tax the value of the goods sold by the service provider in course of providing the taxable service and Notification No. 1/06-S.T., dated 1-3-06 and its predecessors notification, which in respect of construction serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of Hon'ble Madras High Court and of the Tribunal is squarely applicable to the issue of valuation of the photography service and there is absolutely no cogent reason advanced by assessees for taking a different view in this regard in respect of photography service. 5.5 In case of Kerala Colour Lab Association v. UOI [2003 (156) E.L.T. 17 (Ker.)], one of the contentions of the petitioners was that - "valuation of taxable service, inclusive of material costs is illegal, unjust and without any basis, unscientific, irrational and would lead to double taxation since the materials would have suffered a tax on amount of sales and hence Section 67 of the Finance Act, 1994 is liable to be struck down as violative of Article 14" (para 8 of the judgment). Hon'ble High Court dismissed this contention with the following observation in para 11 of the judgment - "once we determine the taxable event as the service rendered, and not the sale of goods, irrespective of whether it is a work contract or a contract for sale of goods, the taxable service would occur. The taxable event occurs because of the service rendered. Merely because the measure or valuation of tax is linked to the gross consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to these judgments, when a transaction is a service transaction and the service is a taxable service, the service tax would be chargeable irrespective of whether it is a work contract involving sale of goods or otherwise and the tax would be chargeable on the "gross amount charged" for the service provided. 5.5.3 In the case of UOI v. Bombay Tyre International decided by Hon'ble Supreme Court vide judgment reported in 1983 (14) E.L.T. 1896, Hon'ble Court, rejecting the Assessee's plea that since central excise is a tax on manufacture or production of goods, the value of excisable goods, for the purpose of charging duty, must be limited to only manufacturing cost plus manufacturing profit and administrative expenses, advertisement/sales promotion expenses, selling expenses etc. cannot form part of the assessable value of the goods, upheld the levy of duty on the value determined under Section 4 of the Central Excise Act based on wholesale price at the factory gate at the time of removal, observing in para 13 of the judgment that - "when enacting a measure to serve as standard for assessing the levy, the legislature need not contour it along the lines which spell out the chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te contracts other than those mentioned in Article 366(29A) could be so split into service and supply for the purpose of charging sales tax on supply portion, the Hon'ble Court prescribed test based on substance of the contract, whether the parties to contract have in mind separate rights arising out of sale of goods, and if there is no such intention, there is no sale, in para 46 to 49, the Hon'ble Court doubted the "dominant intention test" prescribed for this purpose in case of Rainbow Colour Lab and another v. State of M.P. (supra) and conclusion arrived at on the basis of "dominant intention test" with regard to the nature of photography contract - whether it is a divisible work contract covered by Article 366(29)(b) or it is an indivisible service contract. But as observed by Hon'ble Kerala High Court in para 11 of its judgment in case of Kerala Colour Lab Association v. UOI, the question as to whether photography is a divisible work contract or an indivisible service contract is not relevant for charging service tax. Therefore, the observation of Hon'ble Supreme Court in para 46, 47, 48 and 49 of its judgment in case of BSNL v. UOI (supra) are of no help to assessees for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction, permissible from the gross amount, will be of the value of unexposed film, if any, sold. With great respect the judgments of Tribunal in cases of Shilpa Colour Lab (supra) Adlab v. CCE (supra), Delux Colour Lab others v. CCE, Jaipur others (supra) are impediment and appears to be contrary to the law laid down by Hon'ble Supreme Court in case of CK Jidheesh v. UOI (supra), which is a direct judgment of Hon'ble Supreme Court on the issue of valuation of photography service. 6. Question No. 3 6.1 Notification No. 12/03-S.T., dated 20-6-03 fully exempts from service tax, the value of the goods which are sold in course of providing a taxable service. The contention of the appellant in appeal Nos. ST/301, 302 and 303/2006 and of the respondent in appeal No. ST/437/2009 is that the term "sale" in this Notification also includes the "deemed sale" under Article 366(29A) of the Constitution and, therefore, if a service contract is a work contract and hence divisible into service component and goods component for the purpose of charging sales tax on the goods component, no service tax can be charged on the goods component and the same being deemed sale, would be exempt from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of charging sales tax on the goods component, for the purpose of charging service tax, the value of goods component cannot be included. We are most respectfully of the view that this view is not correct when certain goods are used as mere medium to provide the intended service of photography. The observations of Hon'ble Supreme Court in para 28 of its judgment in the case of Imagic Creating Pvt. Ltd. (supra) that payment of service tax and VAT are mutually exclusive, have to be seen in the background of the factual matrix of that case. M/s. Imagic Creative Pvt. Ltd., an advertising agency, in the invoices to their clients, charged separately for the services of "conceptualizing, design and production of computer network of size A3" and supply of goods. On value of the services, service tax was being paid and on goods supply sales tax was being paid. The Sales Tax authorities wanted to include the value of the service also in the assessable value of the goods supply for the purpose of charging sales tax. It is in this background that Hon'ble Supreme Court, observing that the legal fiction under Article 366(29A) of the Constitution should be applied only to the extent for which it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legal fiction of Article 366(29A)(b) is meant for levy of Sales tax on transfer of property in goods involved in execution of a work contract. There being no sale of goods in photography service for the peculiar nature of such activity, the service tax has to be charged on gross value of the service (including cost of paper, chemical and consumables). 8. Question No. 5 8.1 Hon'ble Supreme Court in the case of Shama Rao v. State of Pondicherry [1962 (2) SCR 650] has held as under :- "It is trite to say that decision is binding not because of its conclusion but in regard to its ratio and the principles laid down therein. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be a declaration of law or authority of general nature binding as a precedent. Restraint in dissenting or overruling is for the sake of stability and uniformity but rigidity beyond reasonable limits is inimical to the growth of law". 8.2 Hon'ble Supreme Court in the case of State of UP v. Synthetics and Chemicals Ltd. reported in (1991) 4 SCC 139 has held that - "a decision which is not express and is not founded on reasons cannot be deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emains primarily a matter of contract and intention. The seller and such purchaser would have to be ad idem as to the subject matter of sale or purchase. The court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of sale, as being the subject matter of sale or purchase. In arriving at a conclusion, the court would have to approach the matter from the point view of a reasonable person of average intelligence. 8.3.1 Article 366(12) of the Constitution has defined the word "goods" for the purpose of the constitution as including "all materials, commodities, and articles". The word "goods" has also been defined in Section 2(7) of the Sales of Goods Act, 1930 as meaning "every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale. The State Sales Tax legislations have, subject to minor variations, adopted substantially a similar definition of "goods" for the purpose of their Sales Tax Acts. The decision in Shilpa Colour Lab's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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