2018 (11) TMI 754 - AT - Service Tax

Nature of activity - sale or service - sale of photo books to photographers/photo studios and individual photographers - demand of service tax in terms of Section 65 (78) of the Finance Act, 1994 for the period till 30.6.2012 and thereafter under Section 65B (44) of the Finance Act, 1994. Held that - There is a complete change in the identity and nature of the photographs when printed from soft form to hard bound form as a photo book - the activity undertaken by the appellant under chapter heading 4911, is very much clear that the appellant has undertaken the activity of printing photograph on plain printing paper and thereafter bind them and selling them as photo books. The said activity amount to manufacture and the appellant is paying VAT and therefore, the said activity merit manufacturing activity and classified under Chapter 4911 and the appellant has classified accordingly. Notification No. 14.04- ST dt. 109.2004 amended by Notification No.19/06-ST dt.25.4.2006 with effect from 1.5.2006, exempts specifically the activity of printing from payment of service tax - further, the service exempted in terms of Notification No.25/2012-ST dt.20.6.2012 amended by Notification No.44/2012-ST dt.7.8.2012, 49/2012-ST dt.24.12.2012 and Notification No.3/2013 dt.1.3.2013 with effect from 1.4.2013, S.No.30, the activity of printing as job worker is exempted from payment of service. As the activity of printing has also been exempted from payment of service tax, if we take note of the fact that the activity undertaken by the appellant in relation to photography service then also the activity undertaken by the appellant is not taxable service - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of the activity of printing photo books.
2. Applicability of service tax on the activity under the Finance Act, 1994.
3. Classification of the activity under the Central Excise Tariff Act, 1985.
4. Applicability of VAT and GST on the activity.
5. Applicability of exemptions under various notifications.
6. Nature of the activity as manufacturing or service.
7. Applicability of extended period of limitation, interest, and penalties.

Issue-wise Detailed Analysis:

1. Classification of the Activity of Printing Photo Books:
The appellant engaged in printing and selling photo books, wedding cards, photo calendars, and visiting cards. The primary dispute was whether the activity of printing photo books falls under 'photography service' or is a manufacturing process. The tribunal concluded that the appellant's activity of printing and binding photo books does not fall under 'photography service' as defined under Section 65 (78) and Section 65 (79) of the Finance Act, 1994. Instead, it is a manufacturing process that transforms digital photographs into a tangible photo book.

2. Applicability of Service Tax on the Activity under the Finance Act, 1994:
The tribunal examined the definitions under Section 65 (105) (zb), Section 65 (78), and Section 65 (79) of the Finance Act, 1994. It was concluded that the appellant's activity does not fit within the scope of 'photography service' and thus, is not subject to service tax. The tribunal also noted that the activity is exempt under Notification No. 14/2004-ST and Notification No. 25/2012-ST, which exempt printing services from service tax.

3. Classification of the Activity under the Central Excise Tariff Act, 1985:
The tribunal determined that the activity of printing photo books falls under Chapter 4911 of the Central Excise Tariff Act, 1985, which covers "Other printed matters, including printed pictures and photographs." The tribunal relied on judicial precedents such as CCE vs. Fitrite Packers and CIT vs. M/s. Delhi Press Patra Prakashan to support the classification under Chapter 4911, which attracts nil rate of duty.

4. Applicability of VAT and GST on the Activity:
The appellant was registered under the Punjab VAT Act, 2005, and was paying VAT on the sale of printed materials. The tribunal also noted that under the GST regime, the activity of printing photo books is classified under HS Code 4911 and attracts 12% GST as per the clarification issued by the Department of Revenue, TRU.

5. Applicability of Exemptions under Various Notifications:
The tribunal highlighted that the activity of printing was exempt from service tax under Notification No. 14/2004-ST and Notification No. 25/2012-ST. The tribunal further noted that even if the activity were considered a service, it would still be exempt under these notifications.

6. Nature of the Activity as Manufacturing or Service:
The tribunal concluded that the activity of printing and binding photo books amounts to manufacturing. This conclusion was supported by the transformation of digital photographs into a tangible photo book, which constitutes a new product with a distinct character and use. The tribunal referred to various judicial pronouncements to support this view, including the Supreme Court's decision in AP State Electricity Board vs. Commissioner and the Delhi High Court's decision in CIT vs. M/s. Delhi Press Patra Prakashan.

7. Applicability of Extended Period of Limitation, Interest, and Penalties:
The tribunal did not find it necessary to invoke the extended period of limitation or impose interest and penalties, as the activity was not taxable under the service tax provisions.

Conclusion:
The tribunal set aside the impugned orders and allowed the appeals, holding that the activity undertaken by the appellant amounts to manufacture and is classified under Chapter 4911. Consequently, no service tax is payable by the appellant. Additionally, the activity is exempt from service tax under the relevant notifications.

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