2011 (9) TMI 408 - AT - Service Tax

Appellate Tribunal upholds service tax demand for photography services, no penalty due to lack of clarity

The Appellate Tribunal CESTAT, New Delhi, allowed the Revenue's appeals, confirming the service tax demand and interest, as the cost of material used in ... Inclusion of cost of materials in value of services - photography services - value of taxable service - reliance on precedent of a larger Bench - penalty - absence of mala fide and bonafide beliefInclusion of cost of materials in value of services - photography services - value of taxable service - reliance on precedent of a larger Bench - Cost of material used in providing photography services is required to be included in the value of services for service tax purposes. - HELD THAT: - The Tribunal referred to and followed the larger Bench decision in Aggarwal Colour Advance Photo System (Miscellaneous No.ST/129/11 dated 11.8.11), which held that the value of material used in photography must be added to the value of the service. Both parties agreed that the larger Bench decision covers the question. Applying that precedent, the appellate order excluding the cost of materials was set aside and the demand for service tax was confirmed together with interest. [Paras 2]Impugned order set aside; demand of service tax confirmed with interest by applying the larger Bench precedent.Penalty - absence of mala fide and bonafide belief - reliance on precedent of a larger Bench - Imposition of penalty on the respondent is not justified in view of absence of mala fide and presence of a bonafide belief. - HELD THAT: - The Tribunal observed that the legal position was not free from doubt during the relevant period and was clarified only by the larger Bench decision. The Commissioner (Appeals) had ruled in favour of the respondent, indicating an arguable interpretation of law. Given these circumstances, mala fide could not be attributed to the respondent and a bonafide belief against inclusion of material cost existed. Accordingly, penalty was held unjustified and not imposed. [Paras 4]Penalty set aside on grounds of lack of mala fide and existence of bonafide belief; appeals allowed only to the extent of confirming demand and interest but not penalty.Final Conclusion: Revenue appeals allowed in part: demand of service tax on photography services (including cost of materials) confirmed with interest in accordance with the larger Bench precedent; imposition of penalty on the respondent set aside due to absence of mala fide and existence of a bonafide belief. Issues:1. Whether the cost of material used in providing photography services should be added to the value of services for the purpose of service tax.Analysis:The Appellate Tribunal CESTAT, New Delhi, comprising Mrs. Archana Wadhwa and Mr. Rakesh Kumar, JJ., heard appeals filed by the Revenue against the order of the Commissioner (Appeals). The central issue in question was whether the cost of material used in providing photography services should be included in the value of services for service tax purposes. Both parties agreed that this issue had been addressed in a previous decision by a larger bench of the Tribunal in the case of Aggarwal Colour Advance Photo System. The Tribunal had ruled in that case that the value of such material must indeed be added to the value of services. Consequently, the impugned order was set aside, and the Revenue's appeals were allowed, leading to the confirmation of the service tax demand along with interest.Regarding the penalty aspect, the Tribunal noted that the issue was not clear during the relevant period and was only clarified by the larger bench decision. Given this lack of clarity, the Tribunal found that no malafide intent could be attributed to the respondents. Moreover, the Commissioner (Appeals) had ruled in favor of the respondents, indicating that the matter involved an interpretation of the law, which could have reasonably led the respondents to believe that the cost of material need not be included in the value of services. Consequently, the Tribunal held that since there was no malafide on the part of the respondents, imposing a penalty on them was not justified. Therefore, the Revenue's appeals were allowed only to the extent of confirming the service tax demand and interest, with no penalty imposed on the respondents. The judgment was pronounced in open court by the Tribunal.