2024 (12) TMI 342 - HC - VAT / Sales Tax

Challenge to assessment order - taxation on digital photography - works contract with photography is a service contract or not - HELD THAT - On perusal of the impugned order of assessment, this Court finds that no reply was even submitted by the petitioner pursuant to the order passed by the Appellate authority, nor has any appeal been filed against the order of the Appellate Authority before the Tribunal, insofar as it found that the petitioner is liable to tax in respect of photography. Since the question of liability to tax on photography is decided in the affirmative, the question that remains is the quantum of tax, which would depend on the value of materials involved in the execution of works contract. The same is essentially a question of fact, which is appropriate for the Appellate Authority to decide. Liberty is granted to the petitioner to file an appeal before the Appellate Authority, if so advised, on the limited ground, of determining the extent of the value of the materials involved in the execution of works contract, within a period of three (3) weeks from the date of receipt of a copy of this order. The Writ Petition stands disposed of.

Summary

Issues:
Challenge to impugned order of assessment under TNVAT Act for the assessment year 2014-2015 regarding taxation on digital photography.
Interpretation of whether photography constitutes a service or works contract for tax purposes.
Validity of the Appellate Authority's directions on exemption claims and tax levies.
Jurisdiction of the State to tax works contracts involving photography.
Opportunity for the petitioner to appeal the assessment order.

Analysis:
The Writ Petition challenges an assessment order under the TNVAT Act for the assessment year 2014-2015, focusing on the taxation of digital photography. The petitioner, a registered dealer engaged in digital photography, contested the levy of taxes on the value of materials involved in processing and supplying photographs. The petitioner argued that photography constitutes labor work, citing relevant case law and seeking exemption based on previous court decisions.

The Appellate Authority initially set aside the tax levy on estimated sales turnover but remanded the matter to re-examine the exemption claim on labor charges for photography. The Revenue filed an enhancement petition, arguing that the exemption granted was erroneous based on a Supreme Court decision that photography is a works contract, making the goods component taxable. The Appellate Authority directed the Assessing Officer to reassess the exemption claim and tax the goods element involved in photography transactions.

The impugned order of assessment confirmed sales suppression and treated photography as a works contract, taxing the goods involved in the execution. The petitioner challenged this order, claiming that photography is a service contract on which no taxes should be levied, citing relevant case law. However, the court found that post the 46th amendment to the Constitution, states can tax the value of goods in works contracts. The court upheld the assessment order, stating that goods involved in photography are liable to sales tax/VAT.

The court noted that the petitioner did not reply to the Appellate Authority's order or appeal to the Tribunal, leading to a lack of challenge on the liability to tax on photography. The court granted the petitioner liberty to appeal to the Appellate Authority on determining the value of materials involved in the works contract. The court disposed of the Writ Petition, allowing the petitioner to file an appeal within three weeks for further assessment on the value of materials.

In conclusion, the court upheld the assessment order regarding taxation on photography as a works contract, granting the petitioner an opportunity to appeal on the valuation of materials. The judgment clarified the taxability of goods in works contracts involving photography and emphasized the petitioner's right to challenge the assessment on specific grounds within the specified timeline.