TMI Blog2002 (1) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices by the Finance Act of 1996. The service tax net was widened by adding twelve more services by the Finance Act, 1997. By the Finance Act, 1998, twelve more service were brought within the purview of service tax, namely, Architects, Interior Decorators, Management Consultants, Real Estate Agents, Practising Chartered Accountants, Practising Company Secretaries, Practising Cost Accountants, Security Agencies, Credit Rating Agencies, Market Research Agencies, Under Writers and Mechanised Slaughter Houses. The relevant definitions under the Finance Act are as under :- S. 65(47) : Photography. - Photography includes still photography, motion picture photography, laser photography, aerial photography and fluorescent photography . S. 65(48) : Photography studio or agency. - Photography studio or agency means any professional photographer or a commercial concern engaged in the business of rendering service relating to photography . S. 65(72)(zb) : Taxable Service in relation to photography studio or agency. - Means any service provided to a customer, by a photography studio or agency in relation to photography, in any manner. Under S. 66, Service Tax is charged at fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. The restoration of old photographs, processing and developing of photographic films and printing of photographs are also included. 4. As far as photo colour labs are concerned, it is pointed out that they develop the negative and supply positive prints in the desired size. In the process, the cost of the material involved and passed on to the customer is far greater than the cost of the service involved. It is submitted that more than 50 per cent of the cost is cost of photo paper which is passed on to the customer. An instance is given that for one 6 x 4 size paper print, the amount charged for a print from the customer varies from Rs. 3 to Rs. 5 out of which the paper would cost 90 paise, Customs duty 59 Ps., Excise duty 28 Ps., sales tax 29 Ps., turnover tax 07 Ps. and cost of chemicals for procession 30 Ps. In addition thereto, there would be other overheads like wages, establishment cost etc. Thus, it is contended that an overwhelming percentage of the gross receipt (varying from 50 per cent to 80 per cent) is directly attributable to the cost of materials, and that the proportion of the value of service is negligible. 5. The contention of the learned Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of cine films, holography studios (laser photography) who make holograms, aerial photographers, industrial photographers etc. It is contended that though, in theory, the burden of service tax can be passed on to the recipient of services, in practice, as there is fierce competition in the matter of providing photography services, the service providers like the petitioners will be ousted by individual photographers on account of their competitive edge due to lesser financial burden. The petitioner therefore contended that the tax is discriminative, violative of Article 14 and imposes an unreasonable restriction on his fundamental right guaranteed under Article 19(1)(g). It is also urged that the levy is unconstitutional and illegal since the levy is really a tax on the profession, trade, calling or employment, relatable to Entry 60 of List II of Seventh Schedule to the Constitution of India. It is contended that valuation of taxable services inclusive of material costs is illegal, unjust and without any basis, unscientific, irrational, and would lead to double taxation since the materials would have already suffered a tax on account of sales tax. Hence also, it is contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Entry 60 of List II of Seventh Schedule. In our view, the contention is totally misplaced. As we have already held, Parliament by imposing service tax has neither taxed the material, nor the sale thereof. What has been taxed is the service rendered by the photography studios and agencies, which was hitherto untouched. We are, therefore, unable to accept that Parliament has no competence to enact the legislation for the levy of service tax. 11. The judgment of the Supreme Court in Rainbow Colour Lab and Anr. v. State of M.P., 2001 (134) E.L.T. 332 (S.C.) = (2000) 2 SCC 385, was relied upon by the Counsel for the petitioner to contend that the dominant intention test should be applied in deciding whether the contract was a works contract or a contract for sale of goods. Our attention was drawn to Article 366(29A)(b) of the Constitution. It is true that this judgment takes the view that the dominant intention test would have to be applied for deciding whether the contract is simple contract for sale of goods or whether it is a works contract. In our view, that discussion is neither relevant nor conclusive of the point at issue. In the first place, the judgment in Rainbow Colo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of the tax ...... . 12. The argument that there is double taxation also has no substance. Unless the Constitution expressly or impliedly forbids double taxation, as long as the statute is within the competence of the Legislature, double taxation cannot be a ground for invalidating a fiscal statute. In Municipal Council, Kota v. Delhi Cloth and General Mills Ltd., (2001) 3 SCC 354, the Supreme Court rejected the argument based on double taxation by holding : 22. Though taxation of the same thing under different names is nonetheless double taxation in popular sense, the expertise exposition of the topic seems to also lean in favour of the Revenue, in that the Legislature has been considered to possess the power to levy one or more tax or rates of tax on the same taxable event and since in these areas large latitude and wide discretion has always been allowed to the State to choose its own method or kind of tax or mode and purpose of levy and recovery, unless there is any prohibition in the Constitution or the very law enacted by the Legislature itself prevents such a thing happening no infirmity can be said to vitiate such a levy. Wherever the taxes are imposed by diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e persons or objects and not others. 13(b). In State of Gujarat v. Sri Ambika Mills Ltd., (1974) 4 SCC 656 at pp. 677-78, Mathew, J. quoted Justice Frankfurter in Morey v. Found, 254 US 457 at 472 as follows : Statutes are directed to less than universal situations. Law reflects distinction that exist in fact or at least appear to exist in the judgment of legislators - those who have the responsibility for making law fit fact. Legislation is essential empiric. It addresses itself to the more or less crude outside world and not to the neat, logical models of the mind. Classification is inherent in legislation. To recognize marked differences that exist in fact is living law; to disregard practical differences and concentrate on some abstract identities is lifeless logic. and concluded (SCC P. 678, para 67) In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint, if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 661). Thus, the statute levying service tax is not liable to be challenged on the ground that it does not impose service tax on free lancers, but imposes it on the photographers having a registered establishment. The contention that free lancers are not required to pay professional tax by registering an establishment under the Kerala Municipality Act and are also free from the burden of service tax, while the photographers having registered establishments are required to pay both, is merely an argument of inconvenience. That the consequence of a fiscal statute can never be the basis of impugning it, is an established principle. While dealing with the challenge to the constitutional validity of an economic legislation, it would be useful to recapitulate the note of caution expressed by the Supreme Court in R.K. Garg v. Union of India, AIR 1981 SC 2138 at page 690-91, which reads thus : laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the Legislature should be allowed some play in the joints because it has to deal with compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the Legislature in dealing with economic issues. 14. The next contention is that clause (b) of explanation to S. 67, which excludes the costs of unexposed photography film, unrecorded magnetic tape or such other storage devices sold to the client during the course of providing the service from the value of taxable service, is discriminatory in the valuation of taxable service. We see nothing discriminative or violative of the fundamental right guaranteed under Article 14 in such valuation. The Courts should be very slow in holding that a fiscal statute is discriminatory and violative of Article 14. By adopting a thumb rule of excluding the elements in clause (b) of S. 67, it is not possible to take the view that there is discriminative legislation so as to attract Article 14. See Secretary to Government of Madras v. P.R. Sriramulu, (1996) 1 SCC 345 para. 15. 15. Finally we come to the argument of infringement of Article 19(1)(g) of the Constitution. The fundamental right guaranteed under Article 19(1)(g) i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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