2008 (12) TMI 135 - AT - Service Tax

Activity of developing of exposed photographic films and making prints, thereof includibility of value/cost of photography material (photographic paper and chemicals) in Photography service - Tribunal in the case of Deluxe Colour Lab Pvt. Ltdheld that photography service is works contract involving both sale and service and sale position cannot be subject to service tax- held that value of material not includible - It is a case of interpretation of the statutes and, therefore, extended period of limitation and imposition of penalties would not warrant

Summary

Issues:
1. Tax demand and penalty imposition on the assessee for developing photographic films and making prints.
2. Interpretation of taxable value regarding the inclusion of the cost of photographic paper and chemicals.
3. Application of Notification No. 12 of 2003-S.T. and relevant case laws.
4. Consideration of works contract involving sale and service elements for service tax levy.
5. Reassessment of tax liability, limitation period, and imposition of penalties.

Analysis:
1. The judgment addresses the tax demand and penalty imposition on the assessee for developing photographic films and making prints. The Commissioner (Appeals) had reduced the penalty, but the Revenue filed an appeal for the penalty amount. Another demand of tax and penalty was also under dispute, leading to multiple appeals filed by the assessee against the orders-in-original and revision orders.

2. The main contention revolved around the inclusion of the cost of photographic paper and chemicals in the taxable value. The Tribunal considered the benefit of Notification No. 12 of 2003-S.T. and referred to relevant case laws such as Deluxe Colour Lab Pvt. Ltd. and M/s. Jain Brothers to determine that the sale portion of the activity cannot be subject to service tax.

3. The judgment delves into the interpretation of statutes regarding works contracts involving both sale and service elements for the levy of service tax. It emphasizes that the value of materials in photography services cannot be included in the taxable value of service, following the decision in the BSNL case and subsequent rulings by the Tribunal.

4. In light of the above analysis, the Tribunal allowed the appeals for the assessee on merits, holding that the portion of the value related to photography materials should not be included in the levy of service tax. It directed the Adjudicating Authority to re-determine the tax quantum for the normal limitation period, setting aside penalties and rejecting the Revenue's appeal while allowing the assessee's appeal with consequential relief.

5. The judgment concluded by highlighting the importance of interpreting statutes correctly in cases of works contracts, emphasizing the separation of sale and service elements for taxation purposes. It provided a detailed analysis of relevant case laws and directed the reassessment of tax liability without the inclusion of the value of materials, ultimately favoring the assessee and setting aside penalties imposed.