2005 (10) TMI 3 - SC - Service Tax

Bifurcation of gross receipts of processing of photographs into the portion attributable to goods and that attributable to services Held that - There is one further difficulty in the way of the Petitioner. This Court has, in the case of Rainbow Colour Lab & Anr. v. State of M. P. & Ors 2000 (2) TMI 2 - SUPREME COURT OF INDIA , held that contracts of the type entered into by persons like the Petitioner are nothing else but service contracts pure and simple. It is held that in such contracts there is no element of sale of goods. This Judgment is binding on this Court. In view of this Judgment, the question of directing the Respondent to bifurcate the receipts into an element of goods and the element of service cannot and does not arise. We see no substance in the contention that facts in Rainbow Colour Labs case were different inasmuch as in that case the Court was dealing with a case where photographers take photographs, develop them and then give the photos to the customer. In our view, the ratio of Rainbow Colour Lab s case also applies to cases like the present.

Summary

Issues:
Challenge to letter dated 9th July, 2001, by Ministry of Finance as arbitrary and discriminatory; Violation of Articles 14 and 19(1)(g) of the Constitution; Violation of Finance Act, 1994 as amended by Act 14 of 2001; Petition for bifurcation of gross receipts into goods and services; Preliminary objection based on dismissal of similar Writ Petition by Kerala High Court; Interpretation of provisions of Finance Act; Challenge to clarificatory letter by Ministry of Finance; Application of principles from previous judgments; Doubt regarding correctness of Rainbow Colour Lab's case; Allegation of discrimination in levying service tax.

Analysis:

The petitioner challenged a letter issued by the Ministry of Finance, claiming it to be arbitrary and discriminatory, violating constitutional articles and the Finance Act. The petitioner sought bifurcation of gross receipts into goods and services. A preliminary objection was raised based on the dismissal of a similar Writ Petition by the Kerala High Court, arguing that the current petition should also be dismissed. However, the Court recognized the separation of issues and continued with the hearing.

The challenge was primarily against the amendment in the Finance Act, with the letter serving to clarify the provisions. The Finance Act defined photography services and taxable services related to photography studios. The clarificatory letter by the Ministry of Finance emphasized that the taxable value includes the gross amount charged for the service, excluding only specific costs.

The Court considered previous judgments and found that the challenge to the Finance Act had already been addressed and dismissed in a case involving the Kerala Colour Labs Association. The Court also cited the Rainbow Colour Lab case, establishing that contracts like the petitioner's are service contracts without any element of goods sale. The Court rejected the argument for bifurcation of receipts into goods and services based on this precedent.

The petitioner's submission regarding doubts on the Rainbow Colour Lab case's correctness was dismissed by the Court, which upheld the previous judgments and found no grounds for reconsideration. The Court also addressed the discrimination claim, stating that there was no discrimination in levying service tax based on previous legal interpretations. Ultimately, the Court found no merit in the petition and dismissed it without costs.