2008 (10) TMI 49 - AT - Service Tax

Determination of value of photography service - If the photography service is a works contract , it would follow that it involves the element of both sale and service, and the sale portion of the activity cannot be included in the taxable value of service - value of the materials cannot be included while computing the value of the service - Sale and Service cannot stand in the same box. Sale cannot be treated as service and vice versa - matters sent back for de novo consideration

Issues Involved:
1. Determination of the value of photography service for the purpose of service tax.
2. Whether photography services constitute a 'works contract' involving deemed sale of materials.
3. Applicability of the Supreme Court decisions in Rainbow Colour Lab and C.K. Jidheesh.
4. Impact of the Larger Bench decision in Bharat Sanchar Nigam Ltd. (BSNL) on the case.
5. Limitation period for raising service tax demands.

Detailed Analysis:

1. Determination of the Value of Photography Service for Service Tax:
The core dispute in the appeals was whether the value of photography services for service tax purposes should include the cost of materials like papers, films, and chemicals used in taking photographs and developing & printing films. The authorities below held that these costs should be included in the gross amount charged to customers. However, the appellants argued that they should only pay service tax on the value of the service, excluding the cost of materials.

2. Whether Photography Services Constitute a 'Works Contract':
The appellants contended that photography services are in the nature of a 'works contract' involving deemed sale of materials on which sales tax is payable under relevant State enactments. The authorities rejected this argument, maintaining that the materials form an intrinsic part of the service and are not separable.

3. Applicability of Supreme Court Decisions in Rainbow Colour Lab and C.K. Jidheesh:
The decisions in Rainbow Colour Lab and C.K. Jidheesh supported the Revenue's case. In Rainbow Colour Lab, the Supreme Court held that the job rendered by a photographer does not constitute a 'works contract' but is a pure service contract. Similarly, in C.K. Jidheesh, the Supreme Court reaffirmed that contracts entered into by photographers are service contracts without any element of sale of goods.

4. Impact of the Larger Bench Decision in Bharat Sanchar Nigam Ltd. (BSNL):
The Tribunal found that the Larger Bench decision in BSNL, which took a contrary view, was applicable. The BSNL case clarified that works contracts involve both service and sale elements, which can be split. This decision implied that the value of materials used in photography services should not be included in the taxable value of the service, contrary to the earlier decisions in Rainbow Colour Lab and C.K. Jidheesh.

5. Limitation Period for Raising Service Tax Demands:
The appellants argued that the extended period of limitation was wrongly invoked as there was no fraudulent act or suppression of information with intent to evade service tax. The non-inclusion of the value of materials was based on a bona fide belief that only the service part of the contract was taxable. The Tribunal concluded that since the non-inclusion of material value was in accordance with law, the extended period of limitation could not be invoked.

Conclusion:
The Tribunal set aside the orders of the lower authorities and remanded the matters for de novo consideration in light of the Supreme Court's decision in BSNL. The appeals were allowed, and the authorities were directed to reconsider the issues, including the question of limitation, in accordance with the law.

Pronouncement:
The judgment was pronounced in the open court on October 22, 2008.

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