2010 (5) TMI 227 - AT - Service Tax

Valuation- The dispute is only over the assessable value of the taxable service. The value of any taxable service shall be the gross amount charged by the service provider for such service provided by him and as per Explanation to this Section, the value of taxable service, in case of service in relation to photography, does not include the cost of unexposed photography film, unrecorded magnetic tape or such other storage devoice, if any, sold to the client during the course of providing the service. The point of dispute is as to whether the assessable value of photography service is gross amount charged for the service minus the cost of unexposed photography film, if any, sold , as contended by the Department or the gross amount charged minus the cost of all the materials used as well as the cost of unexposed film, if any sold. Held that- film and chemicals incidentally used for providing photography service. Measure of tax being gross value, use of goods in providing service not charges nature and measure of tax. Sale of goods not involved in photography service. cost of paper, chemical and consumables includible in taxable value for service tax. - referred to Larger bench

Issues Involved:
1. Classification of the photography service as a work contract.
2. Determination of the assessable value of the photography service.
3. Applicability of Notification No. 12/03-S.T. regarding exemption for goods sold during service provision.
4. Mutual exclusivity of service tax and VAT.
5. Reconsideration of the decision in Shilpa Colour Lab v. CCE.

Detailed Analysis:

1. Classification of Photography Service as a Work Contract:
The court deliberated whether the use of paper, chemicals, and other consumables in photography services amounts to a sale of goods under Article 366(29A)(b) of the Constitution. It was concluded that the use of these materials is incidental to the service provided, and the service element is dominant. The court held that photography services do not constitute a work contract under Article 366(29A)(b), and thus, the value of the service should not be determined in isolation from the cost of such goods.

2. Determination of the Assessable Value:
The court examined whether the value of the photography service should be the "gross amount charged" including the cost of materials used minus the cost of unexposed film. According to Section 67 of the Finance Act, 1994, the assessable value of the taxable service is the gross amount charged by the service provider. The court emphasized that the term "gross" means the total amount without deductions, including the cost of materials used in providing the service. The court rejected the contention that only the service element should be taxed, holding that the entire gross amount charged, minus the cost of unexposed film, should be subject to service tax.

3. Applicability of Notification No. 12/03-S.T.:
The court addressed whether the term 'sale' in Notification No. 12/03-S.T. includes deemed sales under Article 366(29A). It was determined that the term 'sale' should be interpreted according to Section 2(h) of the Central Excise Act, 1944, which does not cover deemed sales. The court concluded that the notification does not exempt the value of materials used in providing the service, as these materials are not sold as goods qua goods but are consumed in the service process.

4. Mutual Exclusivity of Service Tax and VAT:
The court considered the observations in Imagic Creative Pvt. Ltd. v. CCT, which stated that service tax and VAT are mutually exclusive. The court held that this principle applies to the context of charging sales tax on goods in a work contract but does not apply to the valuation of photography services for service tax purposes. The court reaffirmed that the gross amount charged for the service, including the cost of materials used, is subject to service tax.

5. Reconsideration of Shilpa Colour Lab v. CCE:
The court noted that the decision in Shilpa Colour Lab v. CCE, which allowed the exclusion of the cost of materials from the assessable value of photography services, needs reconsideration. The court highlighted that this decision did not consider the Supreme Court's ruling in Everest Copiers v. State of Tamil Nadu, which clarified that the main object of photography services is not the transfer of goods but the provision of a service. The court suggested referring the matter to a larger bench for a comprehensive review.

Conclusion:
The court concluded that the assessable value of photography services should include the gross amount charged, encompassing the cost of materials used, except for the cost of unexposed film. The court directed the matter to be referred to a larger bench for further deliberation on the raised questions, ensuring judicial propriety and consistency in decision-making.

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