2006 (7) TMI 666 - AT - Service Tax

Summary

Issues:
1. Whether deduction of the cost of materials is permissible in determining the value of photographic service.
2. Whether penalty imposed on the assessee is justified.

Analysis:
1. The main issue in this case revolves around the permissibility of deducting the cost of materials while valuing photographic services. The Tribunal referred to a judgment by the Hon'ble Supreme Court in the case of C.K. Jideesh v. Union of India, where it was held that photographic service is purely a service contract without involving the sale of goods. Consequently, the Tribunal concluded that the assessee's claim for excluding the value of materials in determining the service cost lacks legal basis. Therefore, the duty demand should be based on the full value of the service, as clarified by the Supreme Court's decision.

2. Another aspect of the case concerns the penalty imposed on the assessee. The counsel for the assessee pointed out a circular issued by the Central Board of Excise & Customs, stating that the deduction of the cost of consumable goods is permissible in valuing photographic services. Considering this argument, the Tribunal found merit in the submission and set aside the penalty of Rs. 15,000 imposed on the assessee. Consequently, the appeal of the assessee was allowed to the extent of penalty reduction.

3. Furthermore, an appeal by the revenue sought to enhance the penalty. However, since the Tribunal had already determined that the penalty was not justified and had set it aside, the appeal by the revenue was deemed to lack merit and was rejected. Both appeals were thus disposed of accordingly, with the penalty being set aside for the assessee and the revenue's appeal for penalty enhancement being dismissed.

In summary, the Tribunal upheld the decision that the cost of materials cannot be deducted while valuing photographic services based on the Supreme Court's ruling. The penalty imposed on the assessee was set aside due to the circular permitting the deduction of the cost of consumable goods, while the revenue's appeal for penalty enhancement was rejected.