2022 (8) TMI 105 - HC - Service Tax

Court allows Writ Petition over statutory appeal, rules wig manufacturing a sale, not service.

White Cliffs Hair Studio Private Ltd. Versus Additional Commissioner, Office of the Principal Commissioner of CGST and Central Excise

The Court held that the Writ Petition was maintainable despite the availability of a statutory appeal, as undisputed facts did not necessitate an ... Nature of activity - sale or service - whether the activity carried on by the petitioner in the hair studio, constitutes sale of a product, being a wig, or service of preparation of wig and fitment thereof? - whether the intrinsic or dominant nature of the transaction is one of sale of a wig or rendition of service? - HELD THAT:- The authority proceeds on the basis that none of the exceptions, including (i) transfer of title in goods or immovable property (ii) deemed sale (iii) a transaction in money (iv) actionable claim, would apply in the instant case. He, thus, proceeds to bring the entirety of the turnover as per the balance sheet of the petitioner, reducing there from, the sale value of the laser combs that have been offered to tax at 14.5% VAT, to tax as service. The petitioner must succeed. Without question, the integral component of the transaction in the present case is the wig itself, as without the wig, there would be no transaction perse. The fitment of the wig and the preparation of the scalp to receive the wig is, in my view, incidental to the product itself - The primary activity carried on by the petitioner is the manufacture of the wig, for which it remits central excise duty. The fitment of the wig, including the preparation of the scalp, and optional maintenance of the wig itself, are incidental to the product. The Hon’ble Supreme Court, in the case of IMAGIC CREATIVE PVT. LTD. VERSUS COMMISSIONER OF COMMERCIAL TAXES & ORS. [2008 (1) TMI 2 - SUPREME COURT], has specifically noted the difference between a composite contract and an indivisible one. A composite contract is one that would involve components of sale and service whereas an indivisible contract, also involving components of sale and service, is one where the distinction between the two is very fine and difficult to determine. Thus, a client could well purchase a wig without opting for the service of fitment or maintenance. The services of preparation of the scalp, fitment as well as maintenance of the wig, are merely to facilitate and aid in the utilization of the product and would have no relevance in the absence of the wig - petition allowed. Issues:1. Maintainability of the Writ Petition in light of the bar of alternate remedy.2. Determination of whether the activity of the petitioner constitutes sale of a product (wig) or service of preparation and fitment of the wig.3. Analysis of the intrinsic nature of the transaction as either sale or service.4. Application of the definition of service under Section 65B(44) of the Finance Act, 1994.5. Consideration of the distinction between a composite contract and an indivisible one.6. Determination of the dominant transaction in the case - manufacture and supply of the wig.Issue 1:The respondent argued that the Writ Petition was not maintainable due to the availability of a statutory appeal against the order-in-original. However, the Court rejected this argument, stating that in cases where facts are undisputed, there is no need to relegate the petitioner to an appellate remedy.Issue 2:The key question was whether the petitioner's activity of manufacturing and fitting wigs constituted a sale of a product or a service. The petitioner contended that the wig was the primary component of the transaction, with fitting and preparation being incidental to the product.Issue 3:The Court analyzed the nature of the transaction and concluded that the integral component was the wig itself. The fitment and preparation of the scalp were deemed incidental to the product, emphasizing that without the wig, the transaction would not exist.Issue 4:The authority applied the definition of service under Section 65B(44) of the Finance Act, 1994, which includes any activity carried out for consideration. Exceptions like transfer of title in goods or immovable property did not apply in this case, leading to the treatment of the turnover as a service for taxation purposes.Issue 5:Reference was made to the distinction between a composite contract involving components of sale and service, and an indivisible contract where the line between sale and service is blurred. The Court emphasized that the dominant transaction in this case was the manufacture and supply of the wig.Issue 6:It was noted that a client could purchase a wig without opting for fitting or maintenance services. The fitment and maintenance services were considered facilitative and had no relevance without the wig itself. Ultimately, the Court allowed the Writ Petition, holding that the impugned order of assessment failed.