2011 (8) TMI 651 - AT - Service Tax

Extended Period of Limitation - Photography services - value of paper, chemicals in gross amount charged - matter was in dispute - Held That - In view of Jaiprakash industries Ltd. vs. CCE, Chandigarh 2002 (11) TMI 92 - SUPREME COURT OF INDIA , When there are divergent views extended period of limitation cannot be invoked. Mere failure or negligence in not taking licence or not paying duty is not sufficient to invoke extended period.

Summary

Issues:
1. Whether the value of paper, chemicals, and packing materials used by the service provider should be added to the value of services for levying service tax.
2. Whether the demand for service tax is time-barred due to a bonafide belief on the part of the service provider regarding the inclusion of material cost in the value of services.

Analysis:

Issue 1:
The dispute in the present appeal revolves around whether the cost of materials used by the service provider should be included in the value of services for the purpose of levying service tax. The Commissioner (Appeals) had set aside the demand of service tax based on previous tribunal decisions favoring the service providers. However, a Larger Bench decision in the case of M/s. Agrawal Colour Photo Industries vs. Commissioner established that the value of services in photography includes the cost of goods and materials used during the service provision. This ruling favored the Revenue's stance that the gross amount charged to clients should encompass material costs.

Issue 2:
Regarding the time-barred nature of the demand for service tax, the Tribunal considered the period from 2004 to 2005 and the show cause notice issued in 2007. The service provider's bonafide belief, supported by government circulars and previous tribunal decisions in their favor, regarding the non-inclusion of material costs in the service value was deemed reasonable. Citing the Supreme Court's observation in Jaiprakash Industries Ltd. vs. CCE, Chandigarh, the Tribunal concluded that the extended period of limitation cannot be invoked when there is a genuine doubt due to conflicting legal interpretations. As the service provider had a bonafide belief based on previous tribunal decisions, the demand for service tax was considered time-barred beyond the normal limitation period. Consequently, the Revenue's appeal was rejected based on the absence of malafide intent on the part of the service provider.

This comprehensive analysis of the legal judgment highlights the key issues of whether material costs should be included in the value of services for service tax purposes and the time-barred nature of the demand based on the service provider's bonafide belief.