2011 (8) TMI 291 - AT - Service Tax

Valuation of photography services - exemption Notification No. 12/2003 - Whether for the purpose of section 67 of the Finance Act, 1994 the value of service provided in relation to photography would be the gross amount charged including the cost of material, goods used/consumed minus the cost of unexposed film - Held that - 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 - For the purpose of section 67 of the Finance Act, 1994, the value of service in relation to photography would be the gross amount charged including 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. - 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.

Issues Involved:
1. Whether the use of paper and consumables in photography services constitutes a sale of goods under Article 366(29A)(b) of the Constitution.
2. Determination of the value of photography services under Section 67 of the Finance Act, 1994.
3. Interpretation of the term 'sale' in exemption Notification No. 12/03-ST, dated 20-6-2003.
4. Applicability of VAT and service tax on photography services as mutually exclusive.
5. Reconsideration of the decision in Shilpa Colour Lab v. CCE in light of the Supreme Court's decision in Everest Photocopier v. State of Tamil Nadu.

Detailed Analysis:

Issue 1: Sale of Goods in Photography Services
The Tribunal was tasked with determining whether the incidental use of paper and chemicals in providing photography services amounts to a sale of goods. The Larger Bench concluded that the use of such materials is integrally connected with the service and does not constitute a sale of goods under Article 366(29A)(b) of the Constitution. The Tribunal emphasized that the dominant nature of the service in photography does not result in the sale of paper, chemicals, and consumables used in providing such service.

Issue 2: Value of Photography Services under Section 67 of the Finance Act, 1994
The Tribunal held that the value of photography services for the purpose of Section 67 should be the "gross amount charged" by the service provider, including the cost of materials and goods used or consumed, minus the cost of unexposed film if sold. This conclusion was supported by the Supreme Court's decision in CK Jidheesh v. Union of India, which upheld the levy of service tax on the gross value of photographic services.

Issue 3: Interpretation of 'Sale' in Exemption Notification No. 12/03-ST
The Tribunal clarified that the term 'sale' in exemption Notification No. 12/03-ST should be interpreted based on the definition provided in Section 2(h) of the Central Excise Act, 1944, and not as per the deemed sale under Article 366(29A)(b) of the Constitution. The notification exempts the value of goods and materials sold by the service provider from service tax, provided there is documentary proof of the sale and compliance with other conditions.

Issue 4: Mutual Exclusivity of VAT and Service Tax
The Tribunal referenced the Supreme Court's observation in Imagic Creative (P.) Ltd. v. CCT that service tax and VAT are mutually exclusive. However, in the context of photography services, where there is no sale of goods involved, the Tribunal held that service tax should be levied on the entire value of the service, including the cost of materials used.

Issue 5: Reconsideration of Shilpa Colour Lab v. CCE
The Tribunal found that the decision in Shilpa Colour Lab v. CCE, which excluded the value of materials used in providing photography services from the service tax valuation, was contrary to the Supreme Court's ruling in CK Jidheesh v. Union of India. The Tribunal emphasized that the gross amount charged for photography services should include the cost of materials used, as these are inseparably connected with the service.

Conclusion:
The Tribunal's comprehensive analysis concluded that for the valuation of photography services under Section 67 of the Finance Act, 1994, the gross amount charged should include the cost of materials used. The term 'sale' in the exemption notification should be interpreted based on the Central Excise Act, and the dominant nature of photography services does not result in the sale of goods. The Tribunal's decision aligns with the Supreme Court's rulings, ensuring that service tax is levied on the full value of photography services, excluding only the cost of unexposed film if sold.

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