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TMI Blog2006 (10) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the Service Tax. On the other hand, Revenue contends that such a deduction is not available as there are no sales of the materials, consumables, etc. by the appellants. 3.At the outset, Shri K.S. Ravi Shankar, the learned Advocate, argued on behalf of M/s. Shilpa Colur Lab and M/s. Spectrum Colour Lab. (i)The attention of the Bench was invited to the decision of this Bench in the case of Adlabs v. CCE, Bangalore - 2006 (2) S.T.R. 121 (Tri.- Bang.) wherein it is held that deduction is available in respect of materials, consumables, etc. used for providing photography service under Notification No. 12/2003-S.T., dated 20-6-2003. (ii)When the departmental representatives contended that the Northern Bench of CESTAT, in the case of Laxmi Color (P) Ltd. v. CCE, Jaipur-II, 2006-TIOL-918-CESTAT-DEL, has disagreed with the views of this Bench on account of the Hon'ble Apex Court's ruling in the case of C.K. Jidheesh v. UOI - 2006 (1) S.T.R. 3 (SC) and Rainbow Colour Lab v. State of Madhya Pradesh - 2001 (134) E.L.T. 332 (SC), Shri Ravi Shankar informed the Bench that the two Supreme Court decisions relied by the Delhi Bench have been overruled by the Apex Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of suppression of facts. The Tribunal, in the case of Super Security Service v. CCE - 2003 (157) E.L.T. 433 (T) has held that in the absence of malafide, the extended period of limitation is not invokable to demand Service Tax. The impugned order is, therefore, bad in law. (x)The appellants have maintained records to show the cost/value of materials used during the relevant period. Therefore, the demand of tax from the appellant by invoking larger period of limitation is illegal and is devoid of any material or positive evidence and, therefore, is liable to be set aside. Several case-laws were relied on to urge that the longer period cannot be invoked in the absence of suppression of facts, etc. with intent to evade duty. (xi)The first appellate authority has erred in relying on the earlier Board Circular No. F.N.II/1/2001-TRU dated 9-7-2001 because the Board Circular dated 7-4-2004 was issued based on Notification No. 12/2003-ST dated 20-6-2003. The Board Circular dated 9-7-2001 was issued before the Notification No. 12/2003 came into force. Therefore, the Appellate Authority erred in holding that the later Board Circular does not supercede the earlier Board Circular date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of rendering of the service. (iv)Section 67 makes it clear by providing specifically that the cost of the unexposed photographic films, un-recorded magnetic tapes or such other storage devices sold to the clients during the course of providing the services, is not liable to be included for payment of Service Tax. (v)Notification 12/2003-ST dated 20-6-2003 has been issued exempting from payment of Service Tax on the value of the goods and materials sold by the service provider during the course of providing taxable service. (vi)The CBEC Circular dated 7-4-2004 issued in the case of Punjab Colour Lab Association, clarified that the service provider was entitled to claim exemption in respect of the input material consumed/sold to the service recipients. This circular, in favour of the assessee, is retrospective in application as held by the Hon'ble Calcutta High Court in the case of Birla Jute and Industries Ltd. v. ACCE - 1992 (57) E.L.T. 674 (Cal.) (vii) The decision of this Bench in Adlabs case (cited supra), is in favour of the appellant. (viii) The Apex Court, in the case of BSNL (cited supra) has held that once it is possible to bifurcate in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve disclosed all primary facts and have also filed their monthly returns regularly, invocation of longer period is not sustainable. In this regard, they rely on the decision rendered in the case of Maruti Udyog Ltd. v. CCE, Delhi - 2002 (147) E.L.T. 881 (Tri.-Del.). (xiv) In a recent judgment, the Hon'ble High Court of Madras has held in the case of The Commissioner of Income Tax, Madurai v. M/s. Jamal Photo Industries (I) Pvt. Ltd., 2006-TIOL-141-HC-Mad-IT that the activity of film processing and printing photographs from negatives would amount to manufacture. Once it is held so, then the entire activity would not attract Service Tax. 5.Shri Saju K. Abraham, the learned Chartered Accountant appearing on behalf of M/s. Surabhi Color Lab, urged the following points:- (i)The appellant is running a color lab at Chalakudy and paid Service Tax of Rs. 87,227/- along with returns for the period from June 2002 to March 2004. A demand of Rs. 1,59,185/-on a turnover of Rs. 24,36,009/- has been made when the turnover as per the returns comes only to Rs. 13,95,310/-. A balance of Rs. 71,958/- has been demanded, (ii)The appellants challenge the levy of Service Tax on (a) the lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the customer in the form of finished goods. The Supreme Court has held in State of Andhra Pradesh v. Kone Elevators (India) Ltd. - 140 STC pg. 32 and also in Hindustan Shipyard Ltd. v. State of Andhra Pradesh - 2000 (119) STC 533 (SC) cases that such transfer is a sale. Hence, Service Tax is not attracted. (x) In the Ad Labs case (cited supra), it is held that nowhere it is stated that the input used in photography should be mentioned in the invoice. Hence, the condition of the lower authorities that the cost of goods sold should be shown in the invoice is illegal. All the records are available to prove that the use of inputs and hence, the deduction may be allowed. (xi)Mens rea is absent and hence the levy of penalty is illegal. 6.Shri P. Ragunathan, the learned Advocate, who represented the appellants in Sl. Nos. 6 to 9, urged the following points :- (i)The issue is covered by Notification No. 12/2003-ST dated 20-6-2003. The lower authorities have erred in refusing to accept the contentions of the appellant. (ii)The lower authority erred in holding that the deduction claimed is not available on the ground that the cost of materials have not been shown separately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inting photograph of various sizes and this should not be considered as rendering any service for the reason that the material cost in printing photograph is much more than the labour cost. He has also cited quite a few decisions. In the light of the definition of Photography services in Section 65(zb), we are not inclined to accept the above contention of Shri Saju K. Abraham. In processing and printing of photos, there is definitely an element of service and it is difficult to accept the contention that the activity is only that of sale. In fact, there is a mixture of both service and sale. We shall be dealing with the other issues holding that all the appellants are rendering photography services. 8.2The question is how to value the services rendered by the appellants. Section 67 of the Finance Act deals with Valuation of taxable services for charging Service Tax. It is stated that for the purpose of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service, rendered by him. A careful reading of the above mentioned provision reveals that the amount charged by the service provider for such service is normally ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the goods and materials sold by the Service provider to the recipient of the service is to be excluded for the purpose of calculating the Service Tax. However, the Notification is subject to the following condition:- There should be a documentary proof specifically indicating the value of the said goods and materials. In the absence of documentary proof, a service provider may claim deduction in an arbitrary manner. In order to avoid that the above condition has been stipulated, it should be borne in mind that there is no requirement that in each and every invoice, such values of goods and materials should be indicated. 8.4The Punjab Color Lab. Association, Jalandar, sent a representation to the Finance Minister with regard to exempting the materials consumed by the service providers while providing the taxable service. In response to their representation, the CBEC issued a clarification dated 7-4-2004. That clarification is reproduced below:- I am directed to refer to your representation forwarded to Finance Minister vide letter dated 11-3-2003 and state that in terms of the notification 12/2003-ST dated 20-6-2003, the exemption in respect of input material consume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w case relates to Sales Tax. The Madhya Pradesh Sales tax authorities took a view that the job done by photographers amounted to works contract . They took advantage of the 46th Amendment of the Constitution and the consequent amendment to the definition of 'sale' in section 2(n) of the local Sales Tax Act. The authorities decided that the turnover of the photographers would be exigible to the levy of Sales Tax. This issue was examined by the Hon'ble Apex Court and it was held that the job rendered by a photographer in taking photographs, developing and printing films does not amount to 'works contract' and not exigible to the levy of sales tax. In other words, the work done by the photographer is only in the nature of a service contract and not involving any sale of goods. 8.7In the C.K. Jidheesh case, the Apex Court followed the decision of the Rainbow Colour Lab case. In the Jidheesh case, the petitioner claimed that the UOI must bifurcate the gross receipts of processing of photographs into the portion attributable to goods and that attributable to services. Then, it must tax only that portion of the receipts, which is attributable to the services render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a deemed sale and Article 366(29A)(d) of the Constitution read with the charging sections in their various sales tax enactments and, therefore, they are competent to levy sales tax on the transactions. 8.11The Apex Court, in the above said decision, has delved deep into the legal history of Article 366(29A). The classical concept of sale was held to apply to the entry in the Legislative List and three essential components are required to constitute a transaction of sale. They are (i) an agreement to transfer title; (ii) supported by consideration; and (iii) an actual transfer of title in the goods. In the absence of any one of these elements, it was held that there was no sale. For example, a contract under which a contractor agreed to set up a building would not be a contract for sale. It was one contract and there was no separate agreement for sale of goods justifying the levy of sales tax by the State Government. Similarly, there was difficulty in levying sales tax on hire purchase contracts and catering contracts because they were not considered to be contracts for sale of goods. The decided case-law in the subject was State of Madras v. Gannon Dunkerly - 1958 (9) STC 353 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in goods involved in the execution of the works contract was deemed to be a sale by this amendment. In para 40, the Apex Court has observed the amendment especially allows specific composite contracts viz. works contract [Clause (b)], hire purchase contracts [Clause (c)], catering contracts [Clause (e)] by legal fiction to be divisible contracts where the sale element could be isolated and be subjected to sales tax. 8.12Para 44, 45, 46 and 47 are very relevant for the present case. They are reproduced below:- 44. In Rainbow Colour Lab. Anr. v. State of M.P. Ors. - (2000) 2 SCC 385, the question involved was whether the job rendered by the photographer in taking photographs, developing and printing films would amount to a work contract as contemplated under Article 366(29A)(b) of the Constitution read with Section 2 (n) of the M.P. General Sales Tax Act for the purpose of levy of sales tax on the business turnover of the photographers. 45. The Court answered the questions in the negative because, according to the Court :- Prior to the amendment of Article 366, in view of the judgment of this Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in the case of Laxmi Color (P) Ltd. case. 8.13 There is another issue which has been dealt with by the Supreme Court in the above decision. While dealing with the issues raised by the petitioners, the Apex Court formulated the following questions :- (A) what are goods in telecommunication for the purposes of Article 366 (29A) (d)? (B) is there any transfer of any right to use any goods by providing access or telephone connection by the telephone service provider to a subscriber? (C) is the nature of the transaction involved in providing telephone connection a composite contract of service and sale? If so, is it possible for the States to tax the sale element? (D) If the providing of a telephone connection involves sale is such sale an inter state one? (E) Would the aspect theory be applicable to the transaction enabling the States to levy sales tax on the same transaction in respect of which the Union Government levies service tax. In para 85, the questions formulated were answered in the following manner: (A) Goods do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29A)(d). The goods in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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