2006 (10) TMI 35 - AT - Service Tax

Valuation(Service tax)-Photography services- Service tax is only imposable in the amount charge for services not other than services-However this is subject to production of documentary evidence

Issues Involved:
1. Correct valuation of photography services for Service Tax purposes.
2. Deduction of the value of materials and consumables from the gross receipt.
3. Applicability of Notification No. 12/2003-ST dated 20-6-2003.
4. Relevance of Supreme Court rulings in related cases.
5. Invocation of extended period of limitation for Service Tax demand.
6. Legality of the demand under Section 68 of the Finance Act.
7. Applicability of Board Circulars and their retrospective effect.
8. Definition and scope of 'sale' under the Central Excise Act, 1944.
9. Service Tax liability for services rendered to other photographic studios.
10. Penalty imposition and mens rea.

Detailed Analysis:

1. Correct Valuation of Photography Services for Service Tax Purposes:
The appellants argued that the value of materials and consumables used in providing photography services should be deducted from the gross receipt to arrive at the correct value of services for Service Tax calculation. The Revenue contended that such a deduction is not available as there are no sales of the materials by the appellants.

2. Deduction of the Value of Materials and Consumables from the Gross Receipt:
The appellants cited the decision in Adlabs v. CCE, Bangalore, where it was held that deduction is available for materials used in photography services under Notification No. 12/2003-ST. They argued that the value of materials sold to customers should not be subject to Service Tax, as per the Supreme Court's ruling in the BSNL case, which overruled earlier decisions in C.K. Jidheesh v. UOI and Rainbow Colour Lab v. State of Madhya Pradesh.

3. Applicability of Notification No. 12/2003-ST dated 20-6-2003:
Notification No. 12/2003-ST exempts the value of goods and materials sold by the service provider from Service Tax, provided there is documentary proof indicating the value of the goods and materials. The appellants maintained records showing the cost of materials used, and the Tribunal found that there is no requirement for such values to be indicated in each invoice.

4. Relevance of Supreme Court Rulings in Related Cases:
The Tribunal noted that the Supreme Court in the BSNL case overruled the decisions in Rainbow Colour Lab and C.K. Jidheesh, which had held that photography services do not involve the sale of goods. The BSNL case clarified that the aspect theory does not apply to include the value of goods in the value of services for Service Tax purposes.

5. Invocation of Extended Period of Limitation for Service Tax Demand:
The appellants argued that the Revenue erred in invoking the extended period of limitation without evidence of suppression of facts. The Tribunal agreed, citing the absence of malafide intent and the regular filing of returns by the appellants.

6. Legality of the Demand under Section 68 of the Finance Act:
The appellants contended that the demand under Section 68 is untenable as it is only the charging section, and the provision for demanding Service Tax is under Section 73. The Tribunal found the demand to be legally unsustainable.

7. Applicability of Board Circulars and Their Retrospective Effect:
The Tribunal noted that the Board Circular dated 7-4-2004, which clarified the exemption for input materials consumed/sold during service provision, is retrospective in application. The later Circular dated 3-3-2006, denying the benefit, is prospective and cannot be applied to the period under dispute.

8. Definition and Scope of 'Sale' under the Central Excise Act, 1944:
The Tribunal observed that the definition of 'sale' under the Central Excise Act applies to Service Tax law, and the transfer of property in goods during the execution of a service contract is subject to VAT/Sales Tax, not Service Tax.

9. Service Tax Liability for Services Rendered to Other Photographic Studios:
The appellants argued that services rendered to other photographic studios do not attract Service Tax as they are not provided to the end customer. The Tribunal found that the demand for Service Tax in such cases is not sustainable.

10. Penalty Imposition and Mens Rea:
The Tribunal held that the absence of mens rea makes the imposition of penalties illegal. The appellants had disclosed all primary facts and maintained necessary records, negating any intent to evade duty.

Conclusion:
The Tribunal allowed the appeals, holding that the value of materials and consumables used in providing photography services should be excluded from the taxable value for Service Tax purposes. The Tribunal also found the invocation of the extended period of limitation and the demand under Section 68 to be legally unsustainable. The decision emphasized the retrospective application of beneficial Board Circulars and the non-applicability of the aspect theory to include the value of goods in service valuation.

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