TMI Blog2022 (4) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity cannot be subjected to tax. Thus, the issue is no longer res integra and has attained finality in favour of the appellant - appeal allowed - decided in favor of appellant. - Service Tax Appeal No. 26073 of 2013 - Final Order No: 20143/2022 - Dated:- 29-3-2022 - MR. RAMESH NAIR, JUDICIAL MEMBER AND MR. P. ANJANI KUMAR, TECHNICAL MEMBER Shri Cheriyan Punnoose, Advocate for the Appellant Smt. C.V. Savitha, Superintendent(AR) for the Respondent ORDER The issue involved is that in respect of photography service; whether the appellant is entitled for the exemption Notification No.12/2003-ST dt. 20/06/2003 in respect of goods such as photography paper and chemicals used for providing photography service. 2. Shri Cheriyan Punnoose, learned counsel appearing on behalf of the appellant at the outset submits that this issue is no longer under dispute as in the appellant s own case; this Tribunal has decided this issue in favour of the appellant in judgment reported at Shilpa Colour Lab Vs. CCE, Calicut [2007(5) STR 423 (Tri. Bang.)] wherein the appellant is one of the parties. He submits that this judgment has been upheld by the Hon ble Supreme Court repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 41,69,972/- has been demanded on the ground that the value of the materials consumed are not deductible. (iii) Section 67 contemplates levy of Service Tax only on the amount chargeable by the service provider for the service rendered by him. It does not provide for levy of Service Tax on the material portion provided during the course of rendering of the service. (iv) Section 67 makes it clear by providing specifically that the cost of the unexposed photographic films, un-recorded magnetic tapes or such other storage devices sold to the clients during the course of providing the services, is not liable to be included for payment of Service Tax. (v) Notification 12/2003-ST dated 20-6-2003 has been issued exempting from payment of Service Tax on the value of the goods and materials sold by the service provider during the course of providing taxable service. (vi) The CBEC Circular dated 7-4-2004 issued in the case of Punjab Colour Lab Association, clarified that the service provider was entitled to claim exemption in respect of the input material consumed/sold to the service recipients. This circular, in favour of the assessee, is retrospective in appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued on 9-8-2004 for demand of Service Tax of ₹ 31,04,826/- for the period from July 2001 to September 2002. The entire demand is beyond the normal period of one year. As the appellants provided all the details regarding the main contractor from whom they undertake the act of processing of the photographs, they had not suppressed any facts. When the appellants have disclosed all primary facts and have also filed their monthly returns regularly, invocation of longer period is not sustainable. In this regard, they rely on the decision rendered in the case of Maruti Udyog Ltd. v. CCE, Delhi - 2002 (147) E.L.T. 881 (Tri.-Del.). (xiv) In a recent judgment, the Hon ble High Court of Madras has held in the case of The Commissioner of Income Tax, Madurai v. M/s. Jamal Photo Industries (I) Pvt. Ltd., 2006-TIOL-141-HC-Mad-IT that the activity of film processing and printing photographs from negatives wou ld amount to manufacture. Once it is held so, then the entire activity would not attract Service Tax. 4.2. In the said judgment, the Tribunal has passed the following order:- 8 . We have gone through the records of the case carefully. The main issue in all these appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ume that any amount charged by the service provider would be liable for Service Tax. There are two explanations under Section 67. Explanation 1 is for the sake of removal of doubts with regard to valuation for certain specific services. It actually provides clarification with regard to inclusion of certain charges and also exclusions. With regard to Photography services, it is stated that the value does not include the cost of unexposed photography film, unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the service . What we understand from the above is that the cost of the items mentioned cannot be added to the value of taxable services when they are sold to a client during the course of providing the service. In case it is included, that would amount to levy of Sales Tax. Sales Tax is actually not a Union subject. The Centre is not competent to levy Sales Tax as per the Constitution of India. Therefore, when an item is sold by a service provider, Revenue cannot demand service tax. The CBEC has issued certain clarifications and there is a Notification also. Let us examine them:- 8.3 The following Notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold while providing the taxable service. The value of such material should also be indicated on the bill/invoice issued in respect of the taxable service provided. Thus, the clarification issued by the CBEC made it abundantly clear that the value of the goods consumed while rendering service need not be included in the value of the taxable service. 8.5 This Bench had occasion to deal with this issue when the benefit of deduction was denied on the ground that the value of the goods consumed is not indicated in the invoice in the case of Adlabs v. CCE, Bangalore, - 2006 (2) S.T.R. 121 (Tri.-Bang.). In the above case, this Bench, made the following observations:- 3. On a careful consideration, we notice that the Commissioner was not justified in taking the view, in contra to the Board s letter and the Notification. The appellants have maintained the records of the inputs used in the photography, nowhere it is stated in the Circular and Notification that the inputs used in the photography should be mentioned in the invoices/bills issued to the customers. The reasoning given by the Commissioner is not sustainable. In view of the clarification given in the Board s l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f M.P. Ors reported in (2000) 2 SCC 385, held that contracts of the type entered into by persons like the Petitioner are nothing else but service contracts pure and simple. It is held that in such contracts there is no element of sale of goods. This Judgment is binding on this Court. In view of this Judgment, the question of directing the Respondent to bifurcate the receipts into an element of goods and the element of service cannot and does not arise. We see no substance in the contention that facts in Rainbow Colour Labs case were different inasmuch as in that case the Court was dealing with a case where photographers take photographs, develop them and then give the photos to the customer. In our view, the ratio of Rainbow Colour Lab s case also applies to cases like the present. 8.8 In the Laxmi Colour (P) Ltd. case, the Tribunal relied on Jidheesh case and held that there is no element of sale of goods in a service like photography. In fact, while deciding the same, the Tribunal extracted para 11 of the Jideesh decision. Thus, it appeared that the entire issue has been finally settled in view of the decision of the Apex Court in the Jideesh case. But, that was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnments were not in a position to levy sales tax. In order to solve the problems confronting the states, the issue of the power of States to levy tax on the sale of goods was referred to the Law Commission by the Government of India. The Law Commission suggested three methods. One of the suggestions was inserting in Article 366 a wide definition of sale so as to include works contracts. The above suggestion of the Law Commission was accepted by the Government of India. Consequently, the 46th amendment was enacted. Article 366 was, therefore, amended by inserting a definition of tax on the sale or purchase of goods in Clause (29A). The same is reproduced below: (29A) tax on the sale or purchase of goods includes, - (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by installments; (d) a tax on the transfer of the right to use any goods fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the 46th Amendment and the judgment of this Court in Builders case (1989) 2 SCC 645 is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction: (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service What is pertinent to ascertain in this connection is what was the dominant intention of the contract On facts as we have noticed that the work done by the photographer which as held by this Court in STO v. B.C. Kame - (1977) 1 SCC 634 is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent State cannot be sustained . 46. This conclusion was doubted in Associated Cement Companies Ltd. v. Commissioner of Customs - (2001) 4 SCC 593 saying:- The conclusion arrived at in Rainbow Colour Lab case [(2000) 2 SCC 385], in our opinion, runs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities. (B) There may be a transfer of right to use goods as defined in answer to the previous question by giving a telephone connection. (C) The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale. (D) The issue is left unanswered. (E) The aspect theory would not apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of the service. Presently, what is of interest to us is the answer to question (E). What is aspect theory? This has been stated in Federation of Hotel Restaurant Association of India v. UOI - 1989 (3) SCC 634 as Subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the materials takes place in the rendering of photography service and, therefore, the value of the materials cannot be included while computing the value of the service. Sale and Service cannot stand in the same box. Sale cannot be treated as service and vice versa. 16. The pronouncement of law by the Supreme Court is binding on all Courts and authorities under Article 141 of the Constitution of India. Any decision of the High Court or the Tribunal or even the Supreme Court of lesser Bench strength has to be understood, read down (if necessary) and applied in the light of the binding precedents of the Supreme Court. As observed above, the dispute involved in these appeals is covered by the decision in BSNL case and, therefore, it is not necessary to make comments on the various decisions cited by the parties, referred to above. We are of the view that in the light of the law laid down by the Supreme Court in BSNL case, the matter has to be reconsidered de novo by the authorities below. 17. One issue which we may deal with relates to limitation. According to the appellant, the impugned demands have been confirmed invoking the extended period of limitation, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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