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TMI Blog2010 (5) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to photography" involves - (a) taking photograph of the object by a camera in course of which image of the object photographed is stored on the photographic film due to chemical change in the photo sensitive silver salts on the photographic film; (b) developing the film to produce the negative which is done by treating the exposed film with solution of some chemicals, in a dark room; and (c) making the print i.e. finished photograph by - (i) exposing the photo sensitive paper to the light passing through the negative, as a result of which a latent image is formed on the paper ; and (ii) treating the exposed paper with developing solution and fixing chemicals as a result of which the latent image on the paper becomes visible and permanent. Thus for preparing a photograph, other than the skill and labour of the photographer, a number of input materials - unexposed photo film, chemicals and photo sensitive paper are used. 1.2 In this group of appeals, there is no dispute that the activity of the Appellants in Appeal No. ST/301, 302 and 303 of 2006 and of the Respondent in appeal No. ST/437 of 2009 is service, taxable under Section 65(105)(zb) read with Section 65(78). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Quick System, the Hon'ble M.P. High Court in writ petition No. 1482/04, vide order dated 26-6-06 has held that the Appellant was undertaking work contract and, therefore, the materials used would be treated as deemed sale and attract sales tax. In view of this, service tax can be charged only on the service portion of the contract. (3) Exemption under notification No. 12/03-S.T., dated 20-6-03, which exempts from the service tax, so much of the value of all the taxable services, as is equal to the value of the goods and materials sold by the service provider to the service receiver, subject to conditions that there is documentary proof specifically indicating the value of the said goods and materials and no input duty credit is taken, is available to a person providing service in relation to photography. The Appellants in appeal No. ST/301, 302 and 303 of 2006 and respondents in appeal No. ST/437 of 2009 were correctly availing this exemption as they were showing the break up of the value of the materials and service. (4) As per 46th constitutional amendment, the materials/goods which get consumed in a work contract are deemed as sale of goods by the service provider to the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exist in the same box, the assessable value for the purpose of charging service tax will not include the value of goods and materials used for providing this service. (6) Hon'ble Madras High Court in case of Tvl. R. Mini Colour Lab v. The Tamil Nadu Taxation Special Tribunal, reported in MANU/TN/8854/07, has held that even if the dominant intention test is applied, photography is a composite transaction of sale and service i.e. a work contract, the goods/material portion of which is chargeable to sales tax. (7) The Tribunal, in its judgments in cases of- (a) Digi Studio v. CCE, Calicut - 2008 (10) S.T.R. 31 (b) CCE v. Crystal Colour Lab - 2008 (10) S.T.R. 26 and (c) Adlabs v. Commissioner - 2006 (2) S.T.R. 121 has held that the cost of goods/materials used in providing the service related to photography is not includible in the assessable value. The Tribunal's judgment in case of Shilpa Colour Lab v. CCE, Calicut (supra) has been affirmed by Hon'ble Supreme Court. (8) The CBEC, vide its letter F. No. 233/2/03-CX-4 dated 7-4-04 to Punjab Colour Lab Association, has clarified that the exemption under Notification No. 12/03-S.T., dated 20-6-03 is available in respect of inputs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod was not available to the Department and hence the service tax demands are time barred. 2.2 Shri Sunil Kumar and Shri Vijay Kumar, the learned Departmental Representatives, made the following submissions. (1) The photographic film, chemicals, paper and other materials used for providing photography service get consumed. They cannot be treated as the materials sold. The benefit of notification No. 12/03-S.T. is only available to the goods sold, not to the goods used/consumed for providing the service. If the plea that the chemicals and paper used during the process of developing and printing of photo film is sale is accepted and value of such materials is excluded while determining the assessable value, same argument would apply for other services also as materials get consumed is most of the services and the whole concept of the "gross amount charged" as the basis of valuation in Section 67 will collapse; as a person providing "Dry cleaning service" will claim deduction of the value of chemicals used in dry cleaning, a courier service provider will claim the deduction of the value of envelops, packing materials, petrol expenses etc. If the contention of Appellants in appeal No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a photographer to this category of work would be eligible to sales tax. Therefore the overwhelming judicial view is that the cost of chemicals and papers should not be excluded since photography service is a pure and simple service contract. Hon'ble Supreme Court's observation in case of BSNL v. UOI (supra) are not applicable to this group of appeals, as while in this group of appeals, the issue involved is as to whether for determining the assessable value of photography service, the cost of the materials and chemicals used for rendering the service is to be excluded, in the case of BSNL v. UOI the issue involved was whether there is any transfer of right to use any goods in providing access or telephone connection by telephone service provider to a subscriber and if so what are the "goods" in telecommunication service for the purpose of Article 366 (29A) (d) of the Constitution. (4) Hon'ble Kerala High Court in case of Kerala Colour Lab Association v. UOI [2003 (156) E.L.T. 17 (Ker.)], rejecting the petitioner's contention that valuation of the taxable service inclusive of material cost is illegal, unjust and without any basis and that Section 67 of the Finance Act, 1994 is lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ]. (7) Hon'ble Supreme Corut's judgment in case of CK Jidheesh v. UOI (supra) is a direct judgment with regard to valuation of photography service vis-a-vis Section 67 of the Finance Act, 1994 and the same cannot be ignored just on the basis of some observations in the nature of obiter dicta in the Hon'ble Supreme Court's judgment in case of BSNL v. UOI (supra). Dismissal of civil appeal by Hon'ble Supreme Court against Tribunal's judgment in case of CCE, Calicut v. Shilpa Colour Lab (supra) by a non-speaking order - "Civil appeal is dismissed", does not lay down any law and has no binding effect under Article 141 of the Constitution. In this regard, reliance is placed on Hon'ble Supreme Court's judgment in cases of- (a) State of UP v. Synthetics & Chemicals Ltd. [1991 (4) SCC 139], (b) Shama Rao v. State of Pondicherry [1967 (2) S.C.R. 650] and (c) Kunhayammed v. State of Kerala [2001 (129) E.L.T. 11 (S.C.)]. (8) Hon'ble Supreme Court's judgment in cases of BSNL v. UOI (supra) and Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes (supra) are with regard to charging of sales tax on deemed sale of goods in work contracts. These judgments, are not relevant for determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the taxable service giving rise to the following questions : (1) While providing photography services whether the use of the paper upon which an image is printed using certain consumables and chemicals, being incidental to the provision of service, amount to sale of goods in terms of Article 366(29A)(b) of the Constitution and whether value of photography service shall be determined in isolation of cost of such goods. (2) Whether for the purpose of Section 67 of the Finance Act, 1994 the value of service provided in relation to photography would be the "gross amount charged" including the cost of material, goods used/consumed minus the cost of unexposed film? (3) Whether the term 'sale' appearing in exemption Notification No. 12/03-S.T., dated 20-6-03, is to be given the same meaning as given by Section 2(h) of the Central Excise Act, 1944, read with Section 65(121) of the Finance Act, 1994 or this term would also include the deemed "sale" as defined by Article 366 (29A)(b) of the Constitution? (4) Whether observations of Hon'ble Supreme Court in para 28 of its judgment in case of Imagic Creative Pvt. Ltd. v. CCT [2008 TIOL - 04 - S.C. - VAT] that service tax and VAT ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on transfer of property in goods (whether as goods or in some other form) involved in execution of work contract; (b) tax on transfer of right to use any goods for any purpose, whether or not for a specified period, for cash, deferred payment or other valuable consideration ; and (c) a tax on supply by the way of or as part of any service in any manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuation consideration. This enabled the State Governments to enact laws for charging sales tax on - (a) Transfer, otherwise other in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) Transfer of property in goods (whether as goods or in some other form) involved in execution of a work contract; (c) Delivery of goods on hire purchase or any system of payment by instalments; (d) Transfer of right to use any goods for any purpose for cash, deferred payment or other valuable consideration; (e) Supply of goods by any un-incorporated association or body of persons to a member thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, that will attract service tax at the rate prescribed under Section 66 of the Finance Act, 1994, on the assessable value as defined under Section 67. This is what Hon'ble Kerala High Court has held in the case of Kerala Colour Lab v. UOI (supra) in para 11 of its judgment, observing that the discussion as to whether or not the photography service is work contract involving sale of goods does not really clinch the issue, as once we determine the taxable event as the service rendered and not the sale of goods, irrespective of whether it is a work contract or not, the taxable event would occur. In view of this, we are of the view that while providing photography service use of paper and chemicals of consumable for printing an image is incidental and rendering of service having primacy, such contract may not of the type referred to in Article 366(29A)(b) of the Constitution, and divisibility of service and goods components therein for charging service tax is unwarranted for no contract to make sale of goods is made between the parties but to provide service is aimed by them. Therefore no separation of value of such element is called for, in providing photography service for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging service tax, the value of the taxable service is only the labour, services and skill used for providing the service, excluding the value of the materials (goods used/consumed and supplied in course of providing the service) or it will be the gross amount charged for providing the service plus/minus the specific inclusions/exclusions mentioned in Explanation 1 to Section 67. 5.2 Section 67 of the Finance Act, 1994, during the period of dispute is reproduced below :- "Valuation of taxable services for charging service tax -For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service provided by him. [Explanation 1] - For the removal of doubts, it is hereby declared that the value of a taxable service, as the case may be, includes, - (a) the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker; (b) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 2006, and the new provisions are more elaborate and contain provisions for determination of value of taxable service in the cases where the provision of service is for a consideration not wholly or partly consisting of money, yet the main provision is still the same and provides that when the provision of service is for a consideration in money, the assessable value shall be the gross amount charged by the service provider for such service provided by him. 5.3 In Section 67, the words - "...amount charged by the service provider for such service provided... by him" are qualified by the adjective "gross", which means without deduction, total, as opposed to "net" - for example gross salary means the salary before various deductions for tax etc., gross weight means the total weight of some goods including the weight of the container/packing. As discussed above, for rendering of certain services some input services, and input goods/materials are used. The gross amount charged by the service provider for such services would include besides the value of the service provider's labour and skill, the cost of all the input goods and services when service is dominant object of the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taxable under Section 65(105)(zzq) and 65(105)(zzzh), exempts from the service tax, 67% of the "gross amount charged" (which is explained as including the value of goods and materials supplied or provided or used for providing the taxable service by the service provider) and the provisions of Cenvat Credit Rules, 2004, providing for Cenvat credit of excise duty paid on input goods and capital goods used and of service tax paid on input services used for providing an output service, it is clear that the intention of the legislature is to charge service tax on the "gross amount charged" for providing the service, which would include the value of the goods and materials supplied or used and the value of input services used for providing the taxable service and if the contention of the Appellants/Respondent is treated as correct, all these exemption notifications and the provisions of Cenvat Credit Rules with regard to Cenvat credit of excise duty paid on the input goods used in providing the output service would become redundant. 5.4 In the case of GDA Security Pvt. Ltd. v. UOI decided by Hon'ble Madras High Court vide judgment reported in 2006 (2) S.T.R. 542 (Mad.) = 2002 (140) E. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion received in the transaction, it does not determine the nature of tax. The taxable event determines the true event of tax, the measure of tax does not determine the nature of tax, but the quantum of tax which can be levied and collected. The observations of Supreme Court in UOI v. Bombay Tyre International [1983 (14) E.L.T. 1896] are relevant. Says the Supreme Court : 'It has long been recognized that the measure employed for assessing a tax must not be confused with the nature of the tax. In Ralla Ram v. Province of East Punjab (1948 FCR 267), the Federal Court held that a tax on buildings under Section 3 of the Punjab Urban Immovable Property Act, 1940, measured by a percentage of annual value of such buildings remained a tax on building under that Act, even though the measure of annual value of a building was also adopted as a standard for determining income from property under Income Tax Act. It was pointed out that although the same measure was adopted for the two levies, the levies remained separate and distinct imposts by virtue of their nature. In other words, the measure adopted should not be identified with the nature of the tax. Hon'ble High Court, accordingly uphel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or produced, the value of an excisable articles must be limited to manufacturing cost plus manufacturing profit. We are of opinion that a broad based standard of reference may be adopted for the purpose of determining the measure of the levy. Any standard which maintains nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of levy. In our opinion, the original Section 4 and the new Section 4 of the Central Excise Act, satisfy this test." In our view, Section 67 of the Finance Act, providing for levy of service tax on the "gross amount charged" by the service provider for the service provided plus/minus the inclusions/exclusions as mentioned in Explanation 1 to this section, satisfy the test for correctness of the measure prescribed by Hon'ble Supreme Court in the above-mentioned judgment, and there is no justification for excluding the cost of the goods/materials used for providing the service. 5.5.4 The observations of Hon'ble Supreme Court in para 46, 47, 48 and 49 of its judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining assessable value of photography service. Moreover, the valuation of taxable service or vires of Section 67 of the Finance Act, 1994 were not the issues under consideration in the case of BSNL. Hon'ble Supreme Court, in case of CIT v. Sun Engineering Work [1992 (198) ITR 297 S.C.] has held that it is neither desirable nor permissible to pick out a word or a sentence from a judgment of a court, divorced from its context of question under consideration and treat it to be the complete law. 5.5.4.1 Hon'ble Supreme Court in case of Bharat Petroleum Corporation Ltd. & another v. N.R. Vairamani & another reported in AIR (2004) S.C. 4778, while holding that courts interpret statutes and their words are not to be interpreted as statutes, has observed as under :- "Courts should not place reliance on decision with discussing as to how the factual situation fits in with the factual situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Enclid's theorems nor as provisions of the statutes and that too taken out of context. These observations must be read in the context in which they appear to have been stated. Judgments of Courts are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification. But in a service of photography when there is no sale of goods involved following the ratio laid down in the case of Everest Copiers v. State of Tamilnadu reported in (1996) 103 S.T.C. 360 (S.C.) and service element is dominant, Article 366(29A)(b) of Constitution making a legal fiction by which the scope of the expression "tax on sale or purchase of goods" in entry 54 of List-II of the 7th Schedule to the Constitution, has been expanded so as to include certain deemed sales, including the transfer of property in goods involved in execution of work contract does not override provision relating to valuation of photography service under Finance Act, 1994 in view of object of this Act to levy tax on services. In view of settled legal position on this issue, the contention that the word "sale" in this notification would cover the deemed sale under Article 366(29A) of the Constitution is of no relevance for the reason that Notification does not override statutory provision. The word 'sale' in this notification has to be interpreted on the basis of its definition as given in Section 2(h) of the Central Excise Act, 1944, which by virtue of Section 65(121) of the Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of service tax as also the VAT are mutually exclusive. While charging sales tax on the goods component involved in a service contract by treating the goods supply as deemed sale by virtue of the Article 366(29A) of the Constitution, the service component cannot be added to the value of the goods, as it will amount to going beyond the purpose for which the legal fiction was created. The legal fiction of Article 366(29A) of the Constitution cannot be invoked for excluding the value of the goods while determining the assessable value of the taxable service of photography which is a service dominated contract as it would amount to extending the legal fiction beyond the legitimate field. Moreover the photographic film, developing chemicals, fixing chemicals and photo sensitive paper, are incidentally used for providing photography service. Chemicals are consumed in providing photography service and such chemicals are not sold as goods qua goods to the service recipient and cannot be said to have been sold within the meaning of the term, as defined in Section 2(h) of Central Excise Act, 1944. Therefore Hon'ble Bombay High Court's judgment in case of CST v. Matushree Textiles Ltd. (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect, as contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any discussion is not ratio decidendi. Hon'ble Supreme Court, in a recent judgment in case of Assistant Commercial Tax Officer v. Rajhumal Jeevandas reported in 2010 TIOL 30 S.C. (CT) has held that reasons is the soul of a judgment. Therefore, with great respect, well reasoned direct judgments of Hon'ble Supreme Court in case of C.K. Jidheesh v. UOI - 2006 (1) S.T.R. 3 (S.C.) and in Everest Copiers' case reported in (1996) 103 STC 360 (S.C.) hold the field for valuation of taxable service in respect of photography. 8.3 With due respect, the decision of Tribunal in Shilpa Colour Lab's case had not gone through the decision of Everest Copiers' case reported in (1996) 103 STC 360 (S.C.) wherein it was held as under : "where the main object of the work undertaken by the person to whom the price is paid is not the transfer of a Chattel as a Chattel, the contract is one of work and labour. The main object of the work undertaken by the operator of a photocopier or Xerox machine is not the transfer of the paper upon which the copy is produced; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that to the service dominated composite contract of photography service, 46th Constitutional Amendment applies, ignoring the rationale behind Everest Copiers' case (supra) which was a decision in post 46th Constitutional Amendment, and a decision squarely covering photography service also. 9. In view of our above discussion, we are respectfully of the view that the Tribunal's judgments, in the case of Shilpa Colour Lab (supra), Agarwal Colour Lab and others v. CCE, Jaipur and others and other judgments of the Tribunal relying upon these judgments, require reconsideration. However - (a) since on the issue of valuation of photography service while the judgments of the Tribunal in cases of Adlab v. CCE, Bangalore (supra), Shilpa Colour Lab v. CCE, Calicut (supra), Delux Colour Lab and Others v. CCE, Jaipur and others (supra), Jain Brothers v. CCE, Bhopal reported in 2009 (13) S.T.R. 633, Technica Colour Lab v. CCE reported in 2009 (13) S.T.R. 589 (Tri.-Del.) = 2009 TIOL 58 CESTAT - Del., M/s. Digi Photo Laser Imaging P. Ltd. v. CCE, Cochin reported in 2007 (TIOL) 1169 (CESTAT - Bang.), Shri Roop Chhaya Colour Studio v. CCE [2008 (11) S.T.R. 125 (Tri.-Bang.) = 2007 (TIOL) 1874 (CE ..... X X X X Extracts X X X X X X X X Extracts X X X X
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