TaxTMI 
TaxTMI 
2008 (10) TMI 49
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....y in any manner" is a taxable service under sub-clause (zb) of Clause 105 of Section 65 of the Finance Act, 1994. 'Photography Studio or Agency' has been defined in Clause 79 of Section 65 to mean, "any professional photographer or a commercial concern (now any person w.e.f 18.04.2002) engaged in the business of rendering service relating to photography". Section 67 of the Act deals with valuation of taxable services for charging service tax. As the provision stood at the relevant time prior to 18.04.2006 the value was to be computed on the basis of gross amount charged by the service provider for the taxable service provided or to be provided by him. 3. The authorities below have held that the value of the photography service would be the gross amount charged from the customers including the cost of materials like papers, films and chemicals used in taking photographs and developing & printing films which form intrinsic part of the service and are not separable from the service rendered. The authorities below rejected the assessees' case that photography is in the nature of 'works contract' involving deemed sale of the said materials on which sales tax is paya....
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....es to the customer in the form of photographic paper, it is only incidental to the service contract. No portion of the turnover of a photographer relating to this category of work would be exigible to sales tax." and agreed with the above view of the High Court. The Supreme Court concluded as under: "Thus, it is clear that unless there is sale and purchase of goods, either in fact or deemed, and which sale is primarily intended and not incidental to the contract, the State cannot impose sales-tax on a works contract simpliciter in the guise of the expanded definition found in Article 366(29A)(b) read with Section 2(n) of the State Act. On facts as we have noticed that the work done by the photographer which as held by this Court in Kame's case (a decision rendered prior to the 46th Amendment), is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent-State cannot be sustained." 6. The issue came to be considered again before another two-Judge Bench in C.K. Jidheesh vs Union of India's case (supra) in the context of challenge to a letter of the Ministry of Finance dated 09.07.2001. Therein the ....
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....he question of levy of service tax did not arise in that case. The observations relied upon are mere passing observations and do not overrule Rainbow Colour Lab's case. Even otherwise, the questions raised in this Petition are fully covered and answered by the decision of the Kerala High Court, which we confirm as laying down the correct law." 8. The Supreme Court in BSNL case (supra) decided by a Larger Bench of three Judges took a different view. Instead of referring to the relevant findings - which may not be adequate to convey the point and the underlying logic - it would be appropriate to extract the relevant parts of the judgment in extenso as under: "41. Sub-clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley 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 was directly ov....
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..... The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29A). Transactions which are mutant sales are limited to the clauses of Article 366(29A). All other transactions would have to qualify as sales within the meaning of Sales of Goods Act, 1930 for the purpose of levy of sales tax. 44. Of all the different kinds of composite transactions the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire purchase contract and a catering contract to bring within the fiction of a deemed sale. Of these three, the first and third involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply has been Constitutionally permitted in sub-clauses (b) and (f) of Clause (29A) of Art. 366, there is no other service which has been permitted to be so split. For example, the sub-clauses of Art. 366(29A) do not cover hospital services. Therefore, if during th....
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....ndivisible. All that has happened in law after the Forty-sixth Amendment and the judgment of this Court in Builders' case is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction : (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service..........What is pertinent to ascertain in this connection is what was the dominant intention of the contract...... ........On facts as we have noticed that the work done by the photographer which as held by this Court in STO v. B.C. Kame is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent State cannot be sustained". 48. This conclusion was doubted in Associated Cement Companies Ltd. v. Commissioner of Customs saying : (SCC p. 609 para 26) "The conclusion arrived at in Rainbow Colour Lab, in our opini....
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....stion was whether providing mobile phone connections by the service providers partakes the character of sale on which States could levy sales tax. While according to the States it also amounted to 'sale' on which sales tax could be levied, the service providers/petitioners contended that the transaction was merely a service and the Union Government alone was competent to levy tax thereon. The decision was thus no doubt rendered in the context of leviability of sales tax on portion of the activity or transaction, but from the extracted portions of the judgment, it is amply clear that the Supreme Court went into the entire gamut of 'deemed sale' in the context of Article 366(29A) of the Constitution of India. The Supreme Court found that out of various composite transactions envisaged in different sub-clauses of clause 29-A; ' works contract', 'hire purchase contract' and 'catering contract'- covered by sub-clauses (b), (c) & (f) of clause (29A) - involve the fiction of deemed sale, and out of these three, works contract and catering contract involve the elements of service and sale at the same time (see para 44 of the judgment above). 12. It ....
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....ate of Kerala, 2001 (129) ELT 11 (SC); Gujarat Ambuja Cements Ltd. vs Union of India, (2005) 4 SCC 214,218; and Suchitra Components vs CCE, 2007 (208) ELT 321 (SC). 15. On behalf of the Revenue, reliance was placed on Laxmi Color (P) Ltd. vs Commissioner of Central Excise, Jaipur-ll, 2006 (3) STR 363 (T-Del.); Delux Colour Lab. Pvt. Ltd. vs Commissioner of Central Excise, Jaipur, 2005 (4) STR 152 (T-Del); Panchsheel Colour Lab. Vs Commissioner of Central Excise, Raipur, 2006 (4) STR 320 (T-Del); Delhi Studio Colour Lab vs Union of India, 2007 (5) STR 184 (P&H); Commissioner of Central Excise & Customs vs Larsen & Toubro Ltd., 2006 (4) STT 12 (CESTAT-MUM); Hari Khemu Gawali vs The Deputy Commissioner of Police, Bombay, (1956) SCR 506 - page 524; CCE, Pune vs Dai Ichi Karkaria Ltd., 1999 (112) ELT 353 (SC). 16. The pronouncement of law by the Supreme Court is binding on all Courts and authorities under Article 141 of the Constitution of India. Any decision of the High Court or the Tribunal or even the Supreme Court of lesser Bench strength has to be understood, read down (if necessary) and applied in the light of the binding precedents of the Supreme Court. As observed above, the d....