2018 (8) TMI 425 - HC - Service Tax

Classification of services - preparation of Electoral Photo Identity Card (EPIC) - whether the service would come under the head Photography seervices or otherwise? - Clarification by a letter No. 334/4/2006-TRU dated February 28, 2006. Whether preparation of EPIC by the petitioner attracts Service Tax? Held that - Clarification 334/4/2006-TRU dated February 28, 2006 had noted that, often services provided consist of more than one service. In such situation, it had opined that, the guiding principle would be to identify the essential features of the transaction. The department had issued another clarification by Circular No. 334/1/2008-TRU dated February 29, 2008. It had noted Section 65A of the Finance Act, 2008. It had opined that, a supply which comprises with a single supply for an economic point of view should not be artificially split. The method of charging or invoicing does not in itself determine whether the service provided is a single service or multiple services. Single price normally suggests a single supply though not decisive. The real nature and substance of the transaction and not merely the form of the transaction should be the guiding factor for deciding the classification. The department had issued a third Circular bearing No. 104/7/2008-S.T. dated August 6, 2008. It had opined that, both the form and substance of the transactions are to be taken into account. The guiding principle is to identify the essential features of the transaction. The subject contracts cannot be said to limit itself to photography. Preparation of a photograph or photography is not the sole purpose of the contracts. The end product is EPIC. Such end product involves a photograph of a voter. The photograph of the voter incorporated in EPIC is not a standalone product - the contract for EPIC cannot be divided into separate compartments to say that, photography or photograph is a separate compartment. It is indivisible. The contracts in question are for preparation of EPIC. The petitioner cannot be said to have rendered any photographic services to an individual or to the person who had entered into the contract with the petitioner. In CMC Limited 2007 (7) TMI 17 - CESTAT, BANGALORE , CESTAT, South Zonal Bench, Bangalore has held that, issue of EPIC cannot be considered to be falling within the definition of photography and photography studio or agency in terms of Sections 65(78) and 65(79) of the Finance Act, 1994. The petitioner not having rendered any service of photography is not liable to pay Service Tax - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Jurisdiction of the show-cause notice dated October 16, 2007.
2. Classification of the petitioner’s services under the Finance Act, 1994.
3. Applicability of Service Tax to the preparation of Electoral Photo Identity Cards (EPIC).
4. Interpretation of relevant sections of the Finance Act, 1994 and related statutes.
5. Maintainability of the writ petition challenging the show-cause notice.

Detailed Analysis:

1. Jurisdiction of the Show-Cause Notice:
The petitioner challenged the show-cause notice dated October 16, 2007, issued by the respondent, alleging that the preparation of EPIC involved photography services, thereby attracting Service Tax. The court found that the show-cause notice lacked jurisdiction as the petitioner did not render any photography services under the Finance Act, 1994. The court quashed the show-cause notice, deeming it without jurisdiction.

2. Classification of Services:
The petitioner argued that their activities did not fall under the definitions of "photography" or "photography studio or agency" as per Sections 65(78) and 65(79) of the Finance Act, 1994. The court agreed, noting that the petitioner was primarily engaged in software technology and the preparation of EPIC involved multiple activities, with photography being a minor component. The court concluded that the petitioner’s services could not be classified as photography services.

3. Applicability of Service Tax:
The petitioner contended that the preparation of EPIC, which involved taking photographs, did not amount to a taxable service under Section 65(105)(zb) of the Finance Act, 1994. The court referenced the case of Larsen & Toubro Ltd., which held that indivisible works contracts could not be subjected to Service Tax prior to June 1, 2007. Since the contracts in question were pre-2007 and involved multiple components, the court ruled that they could not be taxed as photography services. Additionally, the court cited CMC Limited, which held that issuance of EPIC does not fall within the definition of photography services.

4. Interpretation of Relevant Sections:
The court examined several sections of the Finance Act, 1994, including Sections 65(19), 65(76b), 65(78), 65(79), 65(105)(zb), 65A, 66, and 67. It concluded that the petitioner’s activities did not fit the definitions of taxable services related to photography. The court also considered various circulars and clarifications issued by the department, which supported the view that the petitioner’s services were not taxable under the said provisions.

5. Maintainability of the Writ Petition:
The court acknowledged that while it is generally slow to interfere with show-cause notices, it can do so if the notice is without jurisdiction. Given that the writ petition had been pending since 2008 and had undergone a complete hearing, the court found it appropriate to quash the show-cause notice. The court also noted that requiring the petitioner to reply to the notice at this stage would be harsh.

Conclusion:
The court allowed the writ petition, quashing the show-cause notice dated October 16, 2007, and holding that the petitioner was not liable to pay Service Tax for the preparation of EPIC. The question of the vires of the provisions of the Finance Act, 1994, was kept open. The court also ordered the respondents to refund the deposits made by the petitioner along with statutory interest within four weeks.