2011 (8) TMI 721 - 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 Cosmic Dye Chemical v. CCE, Bombay (1994 - TMI - 43929 - SUPREME COURT OF INDIA) has observed that mala fide intention is an essential element for invocation of longer period of limitation. There being different views of High Courts expressing conflicting opinion on the point of dispute are sufficient for any person to entertain a bona fide belief In such the circumstances, mis-statement or suppression of facts, if any, cannot said to be wilful. - Demand beyond normal period of limitation dropped. - Penalty set aside.

Summary

Issues:
Whether the cost of materials used in providing photography services should be included in the value of services for levying service tax.
Whether the demand for service tax beyond the normal period of limitation is valid.
Whether penalty under Section 80 of the Finance Act, 1994 should be imposed.

Issue 1:
The dispute in the present appeal revolves around whether the value of paper, chemicals, and packing materials used by the photography service providers should be added to the value of services provided to make the total amount charged from clients subject to service tax. The appellants were not including the material cost in the value of services, leading to a show cause notice for demand of service tax based on the gross value charged. The authorities confirmed the demand and imposed a penalty, which was upheld by the Commissioner (Appeals), prompting the appeal.

Issue 2:
The Tribunal noted that the matter was no longer res integra and had been settled in favor of the Revenue by a Larger Bench decision in a previous case. The decision established that the value of photography services should include the cost of goods and materials used during the provision of services. However, the period in question for the present appeal was from July 2003 to September 2005, with the show cause notice issued in April 2006. A significant portion of the demand was raised using the extended period of limitation. The Tribunal considered previous government circulars and Tribunal decisions that supported the appellant's position, indicating a bona fide belief regarding the non-inclusion of material costs in the service value. Citing relevant Supreme Court cases, the Tribunal concluded that the extended period of limitation could not be invoked in cases of bona fide doubt, ultimately ruling in favor of the appellant on this issue.

Issue 3:
Regarding the penalty under Section 80 of the Finance Act, 1994, the Tribunal found that since there was no mala fide intent on the part of the appellant and a reasonable belief could be entertained based on previous Tribunal decisions, no penalty was warranted. The Tribunal set aside the penalty and directed the authorities to recalculate the demand within the normal period of limitation. Consequently, the appellant was held liable to pay service tax only for the period falling within the statutory limitation period, and the appeal was disposed of accordingly.

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