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2017 (9) TMI 89 - AT - Service TaxBusiness of Photography - The appellants were paying service tax of 25% of the gross value of services and discharging VAT on the balance amount - The department was of the view that the appellants are liable to discharge service tax on the entire value of the services - whether constitutes fully service element or some part of sale element is also involved? - Circular No.12/2003-ST, dated 20.06.2003 - Held that - The ratio of Safety Retreading Co, Pvt Ltd 2017 (1) TMI 1110 - SUPREME COURT will have to be applied to these appeals, where the appellants had been paying service tax only on the labour component after taking 70% towards materials cost on the gross tyre retreading charges billed and received. The Hon ble Supreme Court, while taking note of the Notification No.12/2003-ST, dated 20.06.2003 as also CBEC Circular, dated 07.04.2004 held that the assessee is liable to pay tax only on the service component quantified at 30%. In the present case, it emerges that all the appellants herein were discharging service tax liability on 25% of the gross billing based on the ad-hoc arrangement arrived at by their Association pursuant to Board s letter dated 07.04.2004 to The Punjab Colour Lab Association. We also find that there is no allegation by the department that 25/75 ratio of Service Cost to Material Cost being followed by the appellants is incorrect. Appeals will required to be remanded back to the original authority for the limited purpose of working out the net service tax liability after taking the value on which they have discharged sales tax/VAT - appeal allowed by way of remand.
Issues Involved:
1. Liability to discharge service tax on the entire value of photography services. 2. Eligibility for deduction under Notification No.12/2003-ST. 3. Applicability of the extended period of limitation. 4. Imposition of penalties. Detailed Analysis: 1. Liability to Discharge Service Tax on the Entire Value of Photography Services: The appellants were engaged in the business of Photography, a taxable service under the Finance Act, 1994. They were paying service tax on 25% of the gross value of services and VAT on the remaining 75%. The department contended that service tax should be paid on the entire value of the services. The original authority confirmed this demand, which was upheld by the Commissioner (Appeals). The appellants argued that they were eligible for deductions as per Notification No.12/2003-ST, which exempts the value of goods sold in the course of providing a taxable service. They cited the Supreme Court judgment in Pro Lab and Safety Retreading Co. Pvt. Ltd. to support their contention. 2. Eligibility for Deduction under Notification No.12/2003-ST: The appellants argued that since they had discharged VAT on 75% of the gross value, they were eligible for deductions under Notification No.12/2003-ST. The department, however, relied on the judgment in Agrawal Colour Advance Photo System, which stated that the value of service in photography includes the cost of goods and materials used, and these cannot be deducted unless sold separately. The appellants did not provide invoices to establish the sale of such materials, thus were not entitled to the benefit of the notification. 3. Applicability of the Extended Period of Limitation: The appellants contended that the issue was interpretational and based on clarifications from the Ministry of Revenue, they had been discharging their tax liabilities accordingly. Therefore, the extended period of limitation should not be invoked. The Tribunal found merit in this argument, noting that when the law itself is unclear, it is inconceivable to allege that the appellants had the intention to evade tax. 4. Imposition of Penalties: Given the interpretational nature of the issue and the appellants' reliance on official clarifications, the Tribunal held that penalties were not imposable. The appellants had been following an ad-hoc arrangement based on a Board's letter to The Punjab Colour Lab Association, and there was no allegation that the 25/75 ratio of Service Cost to Material Cost was incorrect. Conclusion: The Tribunal concluded that the ratio of Safety Retreading Co. Pvt. Ltd. would apply, where the service tax is payable only on the service component. The appeals were remanded back to the original authority for recalculating the service tax liability after considering the value on which VAT was discharged. The adjudicating authority was directed to give the appellants an opportunity to produce documents supporting their VAT/Sales Tax claims. The penalties were set aside, and the appeals were allowed by way of remand with specific directions for fresh adjudication.
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