TaxTMI 
TaxTMI 
2020 (4) TMI 799
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....al questions of law, which read, thus:- "1. Whether, while providing photography service 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 determined in isolation of cost of such goods? 2. Whether the term 'sale' appearing in exemption Notification No.12/03-ST dated 20.06.2003, is to be given the same meaning as given by Section 2(h) of the Central Excise Act, 1944, read with Section 65(121) of the Finance Act, 1994 or this term would also include the deemed "sale" as defined by Article 366(29A)(b) of the Constitution? However, for the convenience sake, the facts are being extracted from CEA No.1/2013. 2. The appellant is engaged in the business of processing, printing and exposure of colour photographic film and obtained service tax registration for providing service on photography as provided under Section 65(63) of the Service Tax Chapter V of Finance Act, 1994 (for short "the Finance Act") made applicable to service tax w.e.f. 16.07.2001. During the scr....
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....x Court in Writ Petition (Civil) No.507/2002 (C.K. Jidheesh vs. Union of India), demand of service tax amounting to Rs. 6,76,386/- was levied on the appellant on the material consumed in the course of its business of photography along with equal penalty under Section 76 of the Act. The findings recorded by the Assistant Commissioner, are reproduced as under:- "Discussion & Findings:- I have carefully gone through the case records & find that M/s Agrawal Colour, Advance Photo System Russel Chouk, Jabalpur is engaged in Photographic Service on which Service Tax was levied w.e.f. 16/07/2001. I observed that on this issue number of show cause notices have been issued. This issue has also been raised in the Supreme Court in the writ petition (civil) No.507 of 2002 (C.K. Jidheesh V/S U.O.I.) The honourable Supreme Court has turned down the petitioner's prayer for an order directing the Respondent to bifurcate the gross receipts or processing of photographs into the portion attributable to goods & that attributable to services. The petitioner claims that the respondent must tax only that portion of the receipts which is attributable to the services rendered. The Supreme Court has al....
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....iolation of the fundamental rights guaranteed under Article 14 of the Constitution. This decision was later on affirmed by the Honourable Supreme Court in C.K. Jidheesh vs. UOI - 2006 (1) STR 3 (SC). Accordingly, the value of the taxable services would include the entire gross amount charged from the customer excluding only the cost of unexposed photographic film, unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the services. 11. The appellant, at the time of filing appeal against the Order-in-Original passed by the Divisional Assistant Commissioner, has raised a new ground that he is not providing any photography services, rather he is manufacturing excisable goods falling under chapter 37 & chapter heading 49.11 of the Central Excise Tariff Act, 1985. The short point to be decided here is that whether the activity of photographing persons/subjects, processing & developing of photographic films and printing of photographs etc. amounts to providing "photography services" under Section 65(78) of the Finance Act, 1994. The point raised by the appellant at this stage, about him being the manufacturer of excisable goo....
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....ng certain questions including the questions which are involved in this batch of appeals. The crux of the issues was: whether for the purpose of Section 67 of the Finance Act, the value of service provided in relation to photography would be the "gross amount charged" including the cost of material, goods used/consumed minus the cost of unexposed film. The Larger Bench of the Tribunal answered the questions against the appellant vide order dated 11.08.2011 (Annexure A-5) and held that unless documentary proof indicating the value of goods and material is submitted, the benefit of the Notification would not be available to the assessee. The burden of proof was on the assessee to establish the value of the goods and material. The Larger Bench while answering the questions referred to it, came to the conclusion that the gross value of service rendered is liable to service tax, as no amount is paid separately for photography service and the goods used and consumed in providing such taxable service. The relevant findings read as under:- "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 ex....
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....Sanchar Nigam Ltd (supra) does not overrule either C.K. Jidheesh (supra) or Rainbow Colour Lab (supra)." Ultimately, in respect of the questions referred to it, the Larger Bench held, thus:- "22. 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, 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." 23. 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 circumstances of each case as the Finance Act, 1994 does not ....
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....03-ST dated 20.6.2003 must be interpreted to cover even a mere transfer of possession of goods for consideration by the appellant to its customers. By referring to Section 2(h) of the Act, it was submitted that any transfer of possession of goods by one person to another in the ordinary course of business or trade, would constitute sale for the purposes of the Act. On the aforesaid premises, it was claimed that the transfer of possession of photographs to the customers which are prepared with the photography paper upon which an image is printed using certain consumables and chemicals etc. constitutes a deemed sale for the purposes of exemption under Notification No.12/2003. It was also the contention of the learned counsel that the intention to sell can be gathered from the invoices wherein the appellant has charged price of material and consumables and has paid VAT on the same. On this ground, it was the stand of the appellant that the finding recorded by the Tribunal that material and consumables embedded in the photographs given to the customer are consumed by them without transfer of possession of material and consumables for some consideration, is perverse. Lastly, it was proj....
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....f invoices and further no Cenvat credit has been taken on the duty paid on the said goods. 9. Having heard learned counsel for the parties, we are of the considered view that the present appeals deserve to be allowed. 10. In view of the aforesaid factual background, a moot question before the learned Authorities below was: as to whether the appellant-assessee was entitled to the benefit of Notification No.12/2003-ST dated 20.06.2003. In order to appreciate the said controversy, it would be expedient to reproduce the relevant portion of the circular, which reads as under:- "Notification No.12/2003-ST, dated 20-6-2003. - In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), 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 sai....
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.... virtue of Section 65(121) of the Finance Act is applicable to service tax. It was further opined that when there is no primary intention of the parties to sell paper, consumable or chemical in providing photography service there is no room left to plead (fiction of Article 366(29A)(b) of the Constitution) in absence of any such sale of these commodities as goods. It further rejected the contention and held that the word "sale" in Notification would not cover "deemed sale" under Article 366(29A) of the Constitution and it is of no relevance inasmuch as Notification does not override statutory provision. The Larger Bench was in agreement with the said view when it held that expression "sold" in the Notification would not include "deemed sale" of goods and material consumed by the service provider while generating and providing service, unless an assessee has discharged burden of proof adducing evidence showing value of goods and material actually sold and satisfied the conditions of Notification. However, the Larger Bench opined that value of taxable service of photography depends on the facts and circumstances of each case as the Finance Act does not intend taxation of goods and ma....
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....nbsp; *** ***" The aforesaid definition of "sale" has been adopted by the M.P. VAT Act, 2002. Sub-clause (ii) of Section 2(u) of the said Act, which is relevant for the purposes of present controversy, is reproduced as under:- "2(u) "Sale" with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes- ***  ....
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....ed for providing such service disappear when the photograph emerges and concluded that value of photography service includes all elements which bring that to the deliverable stage. As noticed earlier, the stand of the appellants is that under sub-clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of works contract, the tax which is paid on the sale or purchase of goods should be on the transfer of property in goods only. The photograph is completed through developing and printing process by using the consumables and chemicals, which are the essential ingredients without which the photography cannot be completed. Therefore, when value of photography paper upon which an image is printed and certain consumables and material with which the photography is done, can be separated from the photography service then both the elements cannot be remixed for the purposes of service tax particularly when the VAT is levied on the material, consumables and chemicals which are used in the photography service. 15. However, it needs to be examined whether Article 366(29A)(b) of the Constitution is attracted in the present case, for which, it is to be necessarily seen whethe....
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....r good test after 46th Constitutional Amendment. We may point out that learned counsel for the respondent assessees took courage to advance such an argument emboldened by certain observations made by two member Bench in the case of C.K. Jidheesh v. Union of India, wherein the Court has remarked that the observations in ACC Ltd. were merely obiter. In Jidheesh, however, the Court did not notice that this very argument had been rejected earlier in Bharat Sanchar Nigam Ltd. v. Union of India (2006) 3 SCC 1. Following discussion in Bharat Sanchar is amply demonstrative of the same: "46. This conclusion was doubted in Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593 saying: "The conclusion arrived at in Rainbow Colour Lab case (2000) 2 SCC 385, in our opinion, runs counter to the express provision contained in Article 366(29A) as also of the Constitution Bench decision of this Court in Builders Assn. of India v. Union of India - (1989) 2 SCC 645. 47. We agree. After the 46th Amendment, the sale element of those contracts which are covered by the six sub-clauses of Clause (29A) of Article 366 are separable and may be subjected to sales tax by the States....
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....ith in Gannon Dunkerley-I (State of Madras vs. Gannon Dunkerley & Co., AIR 1958 SC 560) and which the Court had held was not a sale. The effect in law of a transfer of property in goods involved in the execution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley-I was directly overcome". It then went on to say that all the Sub-clauses of Article 366 (29A) serve to bring transactions where essential ingredients of a 'sale' as defined in the Sale of Goods Act, 1930 are absent, within the ambit of purchase or sale for the purposes of levy of sales tax. 66. It then clarified that Gannon Dunkerley-I survived the Fortysixth Constitutional Amendment in two respects. First, with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29A) operate and second, the dominant nature test would be confined to a composite transaction not covered by Article 366(29A). In other words, in Bharat Sanchar, this Court reiterated what was stated by this Court in Associated Cement that dominant natu....
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....ent of law having been made by Parliament under Article 286(3)(b), the exercise of the legislative power of the State under Entry 54 in List II to impose tax of the nature referred to in Sub-clauses (b), (c) and (d) of Clause (29A) of Article 366 would be subject to restrictions and conditions in regard to the system of levy, rates and other incidents of tax contained in the said law; (iv) while enacting law imposing a tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29A)(b), it is permissible for the State legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of the inter-state trade or commerce under Section 3 of the Central Sales Tax Act or outside under Section 4 of the Central Sales Tax Act or sale in the course of import or export under Section 5 of the Central Sales Tax Act; and (v) measure for the levy of tax contemplated by Article 366(29A)(b) is the value of the goods involved in the execution of a works contract. Though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods i....
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.... goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject. 22. Keeping in mind the aforesaid principle of law, the obvious conclusion would be that Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have "goods" component exigible to sales tax is constitutionally valid. Mr. Patil and Mr. Salman Khurshid, learned senior counsel who argued for these assessees/respondents, made vehement plea to the effect that the processing of photographs etc. was essentially a service, wherein the cost of paper, chemical or other material used in processing and developing photographs, photo prints etc. was negligible. This argument, however, is founded on dominant intention theory which has been repeatedly rejected by this Court as no more valid in view of 46th Amendment to the Constitution. 23. It was also argued that photograph service can be exigible to sales tax only when the same is classifiable as Works Contract. For being classified as Works Contract the transaction under consideration has to be a composite transaction invo....
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....transfer is made. One thing is significant to note that in Larsen and Toubro (supra), it has been stated that after the constitutional amendment, the narrow meaning given to the term "works contract" in Gannon Dunkerley-I (supra) no longer survives at present. It has been observed in the said case that even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has been further held that once the characteristics or elements of works contract are satisfied in a contract, then irrespective of additional obligations, such contract would be covered by the term "works contract" because nothing in Article 366(29A)(b) limits the term "works contract" to contract for labour and service only." 17. The view expressed by the Apex Court in Bharat Sanchar Nigam Limited's case (supra) that after the 46th Amendment, the sale element of those ....
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....s that have been used and sold in the execution of the contract or exemption to material component therein can be granted". The question was whether maintenance and repair service can be treated as service under "works contract" for service tax purposes. The Appellate Tribunal by majority view, upheld the demand, inter alia, on the ground that 'maintenance and repair service' being a specific service is to be treated as service under "works contract" for service tax purposes. On appeal, the Apex Court set aside the said majority view of the Special Bench of the Tribunal and held that Section 67 of the Finance Act clarifies that costs of parts or other material, if any, sold (deemed sale) to customer while providing maintenance or repair service is excluded from service tax subject to furnishing adequate and satisfactory proof by the assessee and this position has been further clarified in Notification dated 20.06.2003 and CBEC circular dated 7.4.2004. It was held that component of gross turnover in respect of which assessee had paid taxes under local Act with which it has registered as works contractor is excluded from service tax. 19. In view of the law laid down by the Apex Cour....