2011 (9) TMI 199 - AT - Service Tax

Photography service - inclusion of value of paper, chemicals and other materials - Section 67 - held that - the issue on merits is no more res integra and stands settled in favour of the Revenue by the Larger Bench decision of the Tribunal in the case of M/s. Agrawal Colour Photo Industries vs. Commissioner (2011 -TMI - 205988 - CESTAT, NEW DELHI (LB)). It stands held in the said decision of the Larger Bench that the value of services in relation to photography would be the gross amount charged including the cost of goods and material used and consumed in the course of such services. Extended period of limitation - suppression of facts - Held that - since the earlier decisions of the Tribunal were in favour of the assessee, it has to be held that there was bonafide doubt about the inclusion of the cost of material in the cost of services. If that be so, no malafide can be attributable to the appellant so as to invoke the extended period of limitation. - demand beyond the normal period of limitation dropped. Penalty - held that - while re-quantifying the demand falling within the period of limitation, no penalty is required to be imposed on the appellants inasmuch as we have already held that there is no malafide on the part of the assessee who could have entertained the reasonable belief that the value of material is not required to be added in the value of services being provided by them.

Summary

Issues Involved:
1. Whether the value of goods and materials used in providing photography services should be included in the value of services for the purpose of service tax.
2. Whether the extended period of limitation is applicable for raising demands against the respondents.

Issue-Wise Detailed Analysis:

1. Inclusion of Value of Goods and Materials in Service Tax Calculation:
The respondents, engaged in providing photography services, were contested by the Revenue on whether the value of paper, chemicals, and other materials used should be included in the value of services for service tax purposes. The Commissioner (Appeals) had ruled in favor of the respondents, referencing precedent decisions such as Shilpa Colour Lab vs. CCE, Calicut, Bharat Sanchar Nigam Ltd. vs. Union of India, and Adlab vs. CCE, Bangalore. However, the Tribunal noted that the Larger Bench decision in M/s. Agrawal Colour Photo Industries vs. Commissioner had settled the issue in favor of the Revenue, establishing that the gross amount charged, including the cost of goods and materials used, should be subject to service tax.

2. Applicability of Extended Period of Limitation:
The core issue was whether the extended period of limitation could be invoked by the Revenue. The show cause notices had invoked a longer period, except for portions within the standard limitation period. The respondents argued that previous decisions and a government circular had led them to believe that the cost of materials need not be included in the service value, negating any malafide intent. The Tribunal acknowledged that the issue had been subject to various interpretations and clarifications, including a letter from the CBEC which had contributed to the respondents' bonafide belief. The Tribunal concluded that the non-inclusion of material costs was not due to any malafide intent but rather a bonafide doubt based on existing precedents and clarifications.

Conclusion:
The Tribunal decided that while the issue on merits favored the Revenue, the extended period of limitation could not be applied due to the respondents' bonafide belief supported by previous judgments and clarifications. The demands beyond the limitation period were not confirmed, and any demand within the limitation period would need re-quantification by the original adjudicating authority. No penalties were imposed on the respondents due to the absence of malafide intent. The appeals were allowed to the extent of demands within the limitation period, and cross objections were disposed of accordingly.