2017 (7) TMI 719 - AT - Service Tax

Valuation - Benefit of N/N. 12/2003 dated 20.06.2003 - The appellant had availed the benefit of the notification on bonafide belief that the cost of papers and chemicals consumed can be deducted from the taxable value of services - whether the appellant is eligible to deduct the cost of papers and chemicals consumed while providing the output service of Photographic Service ? - Held that - the issue is settled by the Larger Bench judgment in the case of Aggarwal Colour Advance Photo System 2011 (8) TMI 291 - CESTAT, NEW DELHI (LB) , where it was held that The cost of unexposed film etc., would stand excluded in terms of Explanation to section 67 if sold to the client. Also, the value of other goods and material, if sold separately would be excluded under exemption N/N. 12/2003 and the term sold appearing thereunder has to be interpreted using the definition of sale in the Central Excise Act, 1944 and not as per the meaning of deemed sale under Article 366(29A)(b) of the Constitution. Time limitation - Held that - except for a vague statement that the appellant has willfully evaded payment of service tax by availing the benefit of notification, there is no evidence to establish that the appellant has intentionally evaded payment of service tax - the show-cause notice issued is time-barred and, therefore, not sustainable. Appeal allowed on the ground of limitation.

Summary

Issues:
1. Whether the appellants are eligible to deduct the cost of papers and chemicals consumed while providing photographic services from the taxable value?
2. Whether the imposition of tax demand, interest, and penalties under sections 76 and 78 of the Finance Act, 1994 is justified?
3. Whether the show-cause notice issued invoking the extended period of limitation is sustainable, and if there is evidence of willful suppression of facts to evade tax?

Analysis:
1. The appellants, engaged in photographic services, deducted the cost of papers and chemicals consumed from the taxable value, leading to a show-cause notice alleging willful suppression of taxable service value. The issue of deductibility was contentious, with the appellant relying on Notification No.12/2003. The Larger Bench judgment in Aggarwal Colour Advance Photo System clarified that the value of services includes the cost of goods and materials consumed, except those sold to the client. The issue was settled in favor of the Revenue, following subsequent judgments. The appellant's reliance on the notification was deemed incorrect, leading to a decision in favor of the Revenue.

2. The original authority confirmed tax demand, interest, and penalties under sections 76 and 78. The Commissioner (Appeals) upheld the decision, prompting the appeals. The appellant argued for the benefit of doubt due to contentious issues during the relevant period. However, the Revenue contended willful suppression, citing precedent judgments. Ultimately, the issue was settled in favor of the Revenue based on legal interpretations and precedents, leading to the confirmation of tax demand, interest, and penalties.

3. The show-cause notice invoked an extended period of limitation without specific allegations of willful suppression. The appellant maintained regular disclosures and produced documents supporting their position. The Tribunal found the notice time-barred due to lack of evidence of intentional tax evasion. The contentious nature of the issue and the absence of concrete proof of willful suppression led to the decision that the notice was not sustainable. Consequently, the appeals were allowed on the ground of limitation, providing the appellants with consequential reliefs.

In conclusion, the Tribunal's judgment resolved the issues surrounding deductibility of costs in photographic services, upheld tax demand and penalties, and deemed the show-cause notice unsustainable due to limitations and lack of evidence of willful suppression.