AI Drafter 
TaxTMI 
TaxTMI 
2017 (9) TMI 89
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....vices and consequently, show-cause notices were issued to the appellant. After due process of law, the original authority confirmed the demand raised along with interest and imposed penalties. The view taken by the original authority was that appellants are liable to discharge service tax on the entire value received by them. In appeal, the Commissioner (Appeals) upheld the confirmation of demand of service tax, interest and penalties. Hence these appeals. 3. The learned counsel appearing on behalf of the appellants submitted that in the case of State of Karnataka Vs Pro Lab reported in (2015) 8 Supreme Court Cases 557 the Hon'ble Apex Court upheld the levy of sales tax on the materials/consumables used in the Photography Services. under the category of Works Contract Service. Notification No.12/2003-ST, dated 20.06.2003 fully exempts from service tax, the value of goods which are sold in the course of providing a taxable service. It is, therefore, argued that since the appellants have discharged VAT on 75% of the gross value they are eligible for deduction as per the Notification No.12/2003-ST, dated 20.06.2003 on the value of materials used in the Photography Services. The....
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....er dated 03.03.2006. The matter had also been agitated in various appellate forums. The Larger Bench of the Tribunal in Agrawal Colour Advance Photo System (supra) had answered the issue considered by it as follows:- "Hence, our answers to the two questions referred to in paragraph 3 above are as follows :- (i) For the purpose of Section 67 of the Finance Act, 1994, the value of service in relation to photography would be the gross amount charged including cost of goods and material used and consumed in the course of rendering such service. The cost of unexposed film etc. would stand excluded in terms of Explanation to Section 67 if sold to the client. (ii) The value of other goods and material, it 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. On the aforesaid analysis of the legal position it can be said that determination of value of taxable service of photography depends on the facts and circums....
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....ent, 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 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 7^th 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 ....
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....n and Toubro, the Court, after extensive and elaborate discussion, once again specifically negated the argument predicated on dominant intention test having regard to the statement of law delineated in ACC Ltd. and Bharat Sanchal Nigam Ltd. cases. The reading of following passages from the said judgment is indicative of providing complete answer to the arguments of the respondent assessees herein : "64. Whether contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if it otherwise has elements of works contract. The view taken by a two-judge Bench of this Court in Rainbow Colour Lab. (supra) that the division of the contract after Forty-sixth Amendment can be made only if the works contract involved a dominant intention to transfer the property in goods and not in ....
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....f of the Appellants that dominant nature test must be applied to find out the true nature of transaction as to whether there is a contract for sale of goods or the contract of service in a composite transaction covered by the clauses of Article 366(29A) has no merit and the same is rejected. 68. In Gannon Dunkerley-ll, this Court, inter alia, established the five following propositions : (i) as a result of Forty-sixth Amendment the contract which was single and indivisible has been altered by a legal fiction into contract which is divisible into one for sale of goods and the other for supply of labour and service and as a result of such contract which was single and indivisible has been brought on par with a contract containing two separate agreements; (ii) if the legal fiction introduced by Article 366(29A)(b) is carried to its logical end, it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for sale of goods a....
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....) of the Rajasthan Sales Tax Rules were declared as unconstitutional and void. It was so declared because the Court found that Section 5(3) transgressed the limits of the legislative power conferred on the State legislature under Entry 54 of the State List. However, insofar as legal position after Forty-sixth Amendment is concerned, Gannon Dunkerley-ll holds unambiguously that the States have now legislative power to impose tax on transfer of property in goods as goods or in some other form in the execution of works contract. 70. The Forty-sixth Amendment leaves no manner of doubt that the States have power to bifurcate the contract and levy sales tax on the value of the material involved in the execution of the works contract. The States are now empowered to levy sales tax on the material used in such contract. In other words, Clause 29A of Article 366 empowers the States to levy tax on the deemed sale." 21. To sum up, it follows from the reading of the aforesaid judgment that after insertion of clause 29A in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two : one for "sale of goo....