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TMI Blog2011 (8) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and material, if sold separately would be excluded under exemption Notification No. 12/2003 and the term 'sold' appearing thereunder has to be interpreted using the definition of 'sale' in the Central Excise Act, 1944 and not as per the meaning of deemed sale under Article 366(29A)(b) of the Constitution. - ST/301-303/2006, 728-729/2007 & 437/2009 - ST/129 OF 2011 - Dated:- 11-8-2011 - JUSTICE R.M.S. KHANDEPARKAR, DR. CHITTARANJAN SATAPATHY, D.N. PANDA, JJ. A.R. Madhav Rao for the Appellant. Sumit Kumar for the Respondent. ORDER D.N. Panda, Judicial Member. Following questions were referred by the Division Bench by Misc. Order No. ST/48/2010(PB), dated 25-5-2010 in Appeal Nos. ST/301-303/2006 and 437/2009 reported in Agrawal Colour Advance Photo System v. CCE [2010] 27 STT 357 (New Delhi - CESTAT) to the Larger Bench for answering : "(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 dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 1355-1358/2007, dated 28-11-2007] and Edman Imaging (P.) Ltd. v . CCE [Final Order No. 333/2007, dated 6-3-2007] are against the Department and in cases of Agarwal Colour Lab (supra), Laxmi Colour (P.) Ltd. v. CCE [2007] 8 STT 268 (New Delhi - CESTAT) and Panchsheel Colour Lab v. CCE [2007] 7 STT 107 (New Delhi - CESTAT) are in favour of the Revenue, and in view of Hon'ble Supreme Court's judgments in cases of Jindal Dye Intermediate Ltd. v. Collector of Customs 2006 (197) ELT 471 (SC) and Jayaswals Neco Ltd. v. CCE 2006 (195) ELT 142 (SC), wherein it was held that in order to maintain judicial propriety in decision making, the Tribunal, wherever it differs with the decision of a Co-ordinate Bench, should refer the matter to a Larger Bench, in such a situation, the matter should be referred to a Larger Bench, and (b) Civil appeal filed by the Department against Tribunal's judgment in case of Shilpa Colour Lab (supra) has been dismissed by Hon'ble Supreme Court by an order stating 'civil appeal is dismissed'; 3. At the beginning of hearing by the Larger Bench, it was suggested by both sides that if questions (2) and (3) appearing in para 3 of the referral order as extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution and, therefore, if a service contract is a work contract and hence divisible into service component and goods component for the purpose of charging sales tax on the goods component, no service tax can be charged on the goods component and the same being deemed sale, would be exempt from service tax under this notification. But in a service of photography when there is no sale of goods involved following the ratio laid down in the case of Everest Photocopiers v. State of Tamil Nadu [1996] 103 S.T.C. 360 (SC) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before Apex Court on following grounds among others : (A) Whether the value of taxable service for the purpose of Service Tax is not the gross amount charged from the customer for service rendered and whether while valuing the photographic services for the purpose of Service Tax the value/cost of goods which are consumed in the process are not liable to be included in the value of photographic services. Another question raised was as to whether the ratio of the decision of Hon'ble Court in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 SCC 1/3 STT 245, which pertains to issue of levy of sales tax on "SIM Card" etc., would at all be attracted for the purpose of valuation of the photographic services under Finance Act, 1994 and whether the decision of Apex Court in Rainbow Colour Lab v. State of M.P. [2000] 2 SCC 385 and C.K. Jidheesh's case (supra) do not hold the field on the issue of valuation of the taxable service. (B) Section 67 provides that the value of taxable service shall be the gross amount charged by the service provider for such service rendered by him. The Explanation to section 67 exempts only the cost of unexposed photography film, unrecorded magne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r scrutiny it was found that the respondents have grossly undervalued their tax liability by deducting the cost of raw material from the gross amount received from the customer. It is submitted that as per section 67 of the Act read with instruction dated 9-7-2001, the value of taxable service shall be the amount charged by the service provider for the service rendered. Accordingly a show-cause notice was issued as to why service tax of Rs. 9,74,050 should not be demanded and penalty under sections 76 and 77 of the Act should not be imposed. (E) It is submitted that the value/cost of goods which are consumed in the process are liable to be included in the value of photographic services. The decision of this Hon'ble Court in Rainbow Colour Lab's case (supra) and C.K Jidheesh's (supra) were also relied by the Adjudicating Authority. (F) Relying on the decision of this Hon'ble Court in Bharat Sanchar Nigam Ltd.'s case (supra), it was held that the decisions of this Hon'ble Court which were relied by the appellant here [i.e., Rainbow Colour Lab's case (supra) and C.K. Jidheesh's case (supra)] were overruled in Bharat Sanchar Nigam Ltd.'s case (supra). It is submitted that the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Tribunal failed to appreciate that in case of sale of material the dealer is permitted to claim exemption by producing the invoice and other necessary documents. From the provisions of section 65(47), 65(48), 65(72)(zb), 66 read with section 67 and its Explanation, it is abundantly clear that the value of taxable service for the purpose of Service Tax is the gross amount charged from the customer for service rendered and the goods which are consumed in the process of rendering service cannot be an item of sale; therefore the claim of the respondent was devoid of merit. 6.2 According to Shri Rao, learned Advocate, while deciding Surabhi Colour Lab case adjudicated by Revenue before Apex Court, the court has held as under : "In the case of Adlabs v. CCE 2006 (2) STR 121 (Bang. - Trib.), it has been observed as follows : 3. On a careful consideration, we notice that the Commissioner was not justified in taking the view in contra to the Boards' letter and the Notification. The appellants have maintained the records of the inputs used in the photography, nowhere it is stated in the Circular and Notification that the inputs used in the photography should be mentioned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at if the goods are held to be used in providing photography services, these goods never being sold to the service recipient, the value of the goods shall be deducted. Such a view can be taken following the basic law laid down in paras 47 and 48 appearing at pages 68 and 83 of the Apex Court decision in Imagic Creative (P.) Ltd. v. CCT [2008] 12 STT 392. 7.2 Accordingly, Shri Malhotra submitted that if the value of the goods used in providing photography services is ascertainable that is not liable to service tax since the Finance Act, 1994 only taxes taxable services provided. The authorities below never ascertained the value of goods if sold but mechanically aggregated the value of goods used in arriving service tax. Entire inputs used in providing taxable service were taxed under the provisions of Finance Act, 1994. Under the Constitutional provisions the article as well as goods used in execution of work contract are subject-matter for taxation by the State Governments. Therefore, Finance Act, 1994 cannot make any attempt to tax the goods for there being no provisions in that law. The artificial definition of sales is only applicable to State levy and that is not at all appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union of India [2007] 8 STT 353 in paragraph 11 of the judgment has observed 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 the taxable event is determined to be rendering of service and not the sale of goods, the question of the activity being a work contract does not in any way change the occurrence of the taxable event. (B) The entire service of 'photography' is an activity where the service element is primary and dominant and this activity also involves the incidental use of paper and chemicals of consumable for printing an image. Most respectfully this contract for rendering the service of photography does not appear to be of the type referred to in Article 366 (29A)(b) of the Constitution. (C) The question raised by the appellant for divisibility of the service incidental goods components of the activity is totally unwarranted. Neither on fact nor in law is any contract for sale of goods made between the service provider the service recipient. (D) The contract is for rendering of service of photography. No artificial splitting or separation of value of goods no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Kerala Color Lab's case (supra) has categorically held that the question of whether photography is a divisible work contract or an indivisible service contract is not relevant for charging Service tax. The obiter references in paragraphs 46, 47, 48, 49 in case of Bharat Sanchar Nigam Ltd. (supra) are of no help in deciding on the question of law and fact of determining the assessable value of the photography service. (J) The questions of valuation of taxable services or vires of section 67 of the Finance Act, 1994, were not the issues under consideration before the Bench in the case of BSNL. Section 67 of the Finance Act, 1994, providing for the 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 the Explanation. (K) In several judgments/orders with regard to sales tax it has been held that service tax is chargeable on the gross amount charged. The ratio decidendi of these judgments/orders is squarely applicable to the issue of valuation of the photography service and the appellants have not advanced any cogent reason for taking a different view with respect to the 'photog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Appeal No. 263 of 2008 disposed on 23-4-2009 by Apex Court in the case of Surabhi Color Lab (supra), it was noticed that Apex Court had not dismissed Revenue's appeal in that case but has remanded the matter to ascertain whether the respondent assessee in that case has maintained the records of the inputs used in the photography. Neither side informed as to whether the matter has been concluded by Tribunal upon remand by Apex Court. 11. Our attention was also drawn on the aforesaid date by Sri Rao to page 16 of his paper book to submit that Civil Appeal No. 7060 of 2009 filed by Revenue in the case of CC CE v. Technica Colour Lab to submit that the said appeal of Revenue was dismissed by order dated 21-7-2010 by Apex Court in view of dismissal of Civil Appeal Nos. 257-258 of 2008 and Civil Appeal No. 263 of 2008 preferred by Revenue. But when Civil Appeal No. 263 of 2008 was not dismissed by Apex Court, we were curious to know the actual position by an affidavit from the Appellant. Accordingly a Misc. Order No. 125/2010 was passed in that regard. Para 4 of the said order reads as under : "4. In view of the fact that the order dated 23-4-2009 quoted above speaks of remittance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (disposed on 23-4-2009) while Civil Appeal No. 7060 of 2009 was disposed on 21-7-2010. 14. On the basis of order of remand in Civil Appeal No. 263 of 2008, Revenue's plea was that when Surabhi Color Lab's case (supra) was remanded, the Larger Bench has jurisdiction to decide the Reference in favour of Revenue. But emphasis of assessees was on the exemption Notification No. 12/2003-ST, dated 26-6-2003 (at page 13 of paper book) granting exemption to the value of goods and materials sold by the service provider to the recipient of service from service tax. Valuation of Taxable Service 15. Service tax is levied on the gross value of taxable service. That is measure of levy. Therefore determination thereof is crucial. Power is vested with Central Government to notify in public interest to grant exemptions from service tax in exercise of power conferred under section 93 of the Finance Act, 1994. Depending on the facts and circumstances of each taxable service provided, certain elements of cost make value of such services and such elements which are integral, relevant, indispensable and inevitable to provide taxable service and bring that service to the stage of performance, contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials. Provided that the said exemption shall apply only in such cases where (a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004; or (b) where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials." The term "sold" as appearing in the Notification can only be read with reference to definition of 'sale' as appearing in the Central Excise Act, made applicable for the purpose of levy of service tax under the Finance Act, 1994. It therefore follows that the Notification intends to exempt the value of goods and mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Punjab Colour Lab Association. That letter has described the terms of the Notification No. 12/2003-ST, dated 20-6-2003 and also states that exemption in respect of input material consumed/sold by the service provider while providing taxable service to the service recipient is permissible subject to maintenance of records showing the material consumed/sold while providing taxable service. It may be appreciated that the word "consumed" was not used in the Notification and there is no provision in law to recognize such letter that has no legs to stand in the eyes of law. Further we find that the impugned letter has been subsequently withdrawn. 21. Service tax law is not the law relating to commodity taxation. The Notification in question issued under that law seeks to achieve that end by exempting value of goods sold while providing taxable service. There is no doubt that papers, consumables and chemicals are used and consumed to bring photographs into existence. It is also quite true that no service recipient goes to a photography service provider to buy paper, chemicals and other photography materials. What the service recipient expects from the photography service provider is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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