VALUATION OF PHOTOGRAPHY SERVICES

[Dr. Sanjiv Agarwal]

As per section 65(78) of Finance Act, 1994 photography has been defined by way of a inclusive definition to include following five types of photographies —

(i) still photography,

(ii) motion picture photography,

(iii) laser photography,

(iv) aerial photography, and

(v) fluorescent photography.

The value of photography service is the gross amount charged from the customers and there have been numerous cases wherein dispute has been decided in favour of revenue as well as assesses.

In Delux Colour Lab Pvt. Ltd v. CCE ,Jaipur and Garg Photo Film v. CCE ,Allahabad and Anurag Photo Lab Pvt. Ltd v. CCE ,Bhopal and Anurag Colour  Lab v CCE, Bhopal [2008 -TMI - 31837 - CESTAT NEW DELHI], the principal bench of Cestat at New Delhi has decided this bunch of appeals disposed off by a common order. The crux of the order is that when a photographer provides services, deemed sale of the material takes place in rendering such service and therefore, value of materials can not be included while computing the value of taxable service.

In C. K. Jidheesh v. Union of India 2006 TMI - 288 - Supreme Court, Supreme Court held that "there appears to be no discrimination since photographic contracts are service contracts, pure and simple and, therefore, service tax could be levied on the gross amount. In case of other services where only service element is taxed, there is bifurcation because service is provided and goods are sold. In our view, there is no discrimination. Cost of consumables cannot be reduced from gross value."

In Western Rajasthan Colour Lab Association and Another v. Union of India & Others [2008 -TMI - 3416 - HIGH COURT RAJASTHAN], the bifurcation of the gross receipts of the photographic services between the price of goods supplied and services rendered was rejected in view of the photographic services being in the nature of service contracts pure and simple (following C.K. Jidheesh v. Union of India 2006 SC 444).

In Panchsheel Colour Lab v. CCE, Raipur (2007) 7 STT 107; (2006) 7 STJ 55 (CESTAT, New Dlehi), where assessee rendering photography services claimed that while determining value of service, deduction of cost of materials was permissible, it was held that such claim had no legal basis and it was required to pay service tax on full value, following apex court verdict CK Jidheesh v. Union of India (supra).

On the other hand, in Adlabs v. CCE (2006) 3 STT 310 (Cestat, Bangalore), where the assessee claimed reduction in cost of certain materials used in process of photography and lower authorities denied the benefit to assessee on the ground that material used had not been indicated in bills or invoices, it was held that it is nowhere stated in Notification No. 12/2003-ST dated 20.6.2003 or Letter No. 233/2/2003/CX-4 dated 7.4.2004 that inputs used in photography should be mentioned in invoices issued to customers and that appellant had a strong prima facie case in its favour for full waiver of pre-deposit of service tax and penalty and for staying recovery till the disposal of appeal.

In Foto Flash v. CCE, Bangalore (2007) 6 STT 156 (Cestat, Bangalore), where service tax was demanded on use of raw materials in photography services, it was held that in view of Adlabs v. CCE (2006) 4 STT 133 (CESTAT, Bangalore) decision, no service tax was leviable on the assessee. In Adlabs case supra, it was held that inputs were not required to be separately shown in invoices. [Also see Ajantha Digital Colour Lab & Studio v. CCE, Bangalore (2007) 6 STT 484 (CESTAT, Bangalore)]

In view of the confecting judgments, relying upon the apex court judgement in Bharat Sanchar Nigam Ltd (BSNL) v. Union of India [2006 -TMI - 309 - Supreme court] that sale can not be treated as service and vice versa and in view of article 366 (29A) (b), deemed sale of material taking place in rendering of taxable service, it was held that value of materials can not be include while computing the value of service and that 'sale and 'service' can not stand in the same box.

In BSNL case, the principal question was whether providing mobile phone connections by the service providers partakes the character of sale on which States could levy sales tax. While according to the States it also amounted to 'sale' on which sales tax could be levied, the service providers/ petitioners contended that the transaction was merely a service and the Union Government alone was competent to levy tax thereon. The decision was thus no doubt rendered in the context of leviability of sales tax on portion of the activity or transaction, but from the extracted portions of the, judgment, it is amply clear that .the Supreme Court went into the entire gamut of 'deemed sale' in the context of Article 366(29A) of the Constitution of India. The Supreme Court found that out of various composite transactions envisaged in different sub-clauses of Clause (29A) 'works contract', 'hire purchase contract' and 'catering contract'- covered by Sub-clauses (b), (c) & (f) of Clause (29A) - involve the fiction of deemed sale, and out of these three, works contract and catering contract involve the elements of service land sale at the same time.

The decision in BSNL case lays down the law that works contract (and also catering contract) involves the element of both sale and service contract and that the service and sale elements can be split up. If the photography service is a 'works contract', it would follow that it involves the element of both sale and service, and the sale portion of the activity or transaction-cannot be included in the taxable value of service. There cannot be any doubt, in view of sub-clause (b) of Clause (29A) of Article 366, that deemed sale of the materials takes place in the rendering of photography service and, therefore, the value of the materials cannot be included while computing the value of the service. 'Sale' and 'Service' can not stand in the same box. Sale cannot be treated as service and vice versa.

The BSNL case was relied in view of it being of a three member larger bench and in light of the binding precedents of Supreme Court.

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