Photography Service - Inclusion of Cost of material used in Gross amount charged from client

PJ/Case Laws/2011-12/1520

Case: SHOBHA DIGITAL LAB. Versus COMMISSIONER OF CENTRAL EXCISE, BHOPAL

Citation: 2011 (24) S.T.R. 430 (Tri. - Del.)

Issue:- Photography Service – inclusion of value of paper, chemicals and packing materials in value of services – Held, Value of material to be included in gross amount charged for providing service.

No penalty imposable – when assessee is acting under bona fide belief and various decision of High Court existing.

Extended period of Limitation not invokable when assessee acts under bona fide belief and various decision of High Court existing favouring assessee.

Brief Facts:- Respondents are engaged in providing photography services to their customers.

As the appellants were not including the cost of material consumed for providing the said services, and were paying the Service Tax on the basis of the value arrived by deducting the cost of the chemicals and paper used in developing and printing the photographs, proceedings were initiated against them by way of issuance of show cause notice dated April 2006 for confirmation of demand of service tax on the ground that the tax is required to be paid on the gross value charged for the services.

The said show cause notice culminated into order passed by the authorities below confirming the demand of Service tax and imposition of penalty upon them.

The said order of the original appellate authority was upheld by the Commissioner (Appeals).

Hence, the present appeal.

Reasoning of Judgment:- The Tribunal held that the issue on merits is no more res integra and stands settled in favour of the Revenue by the Larger Bench decision of the Tribunal in the case of M/s. Agarzval Colour Photo Industries v. Commissioner, vide Misc. Order No. ST/129/11, dated 11-8-2011 [2011 (23) S.T.R. 608 (Tribunal - LB]. It stands held in the said decision of the Larger Bench that the value of services in relation to photography would be the gross amount charged including the cost of goods and material used and consumed in the course of such services.

However, it is noted that period involved in the present appeal is from July, 2003 to September, 2005 and show cause notice was raised in April, 2006. As such, a major part of the demand stands raised by invoking the extending period of limitation. It is seen that the said issue was the subject matter of consideration by the Government as also by the Tribunal. Government in its Circular F. No. 233/2/2003-CX-4 dated 7-4-2004 addressed to the Punjab Colour Lab Association had clarified that service provider was entitled to claim exemption in respect of inputs, material consumed/sold to the service recipient. Apart from the above clarification, the earlier decision of the Tribunal in the case of Shilpa Colour Lab reported in 2007 (5) S.T.R. 423 (Tri.-Bang.) as also in the case of Adlab Labs reported in 2006 (2) S.T.R. 121 (Tri.) etc. were in favour of the assessee.

As such, it can be safely concluded that there could be bona fide belief on the part of the appellant as regards non-inclusion of the material cost in the value of services. The issue stands decided against the appellant, by the Larger Bench decision of the Tribunal delivered on 11-8-2011. The Hon'ble Supreme Court in the case of Piprakash Industries Ltd. v. CCE, Chandigarh reported in 2002 (146) E.L.T. 481 (S.C.) has observed that when there is a bona fide doubt as regards the non-excisability of the goods due to divergent views of the High Courts, extended period of five years cannot be invoked.

It further stands observed that mere failure or negligence in not taking licence or not paying duty is not sufficient to invoke extended period. Further, the Hon'ble Supreme Court in the case of Cosmic Dye Chemical v. CCE, Bombay reported in (1995) 6 Supreme Court Cases 117 has observed that main fide intention is an essential element for invocation of longer period of limitation. There being different views of High Courts expressing conflicting opinion on the point of dispute are sufficient for any person to entertain a bona fide belief In the circumstances, mis-statement or suppression of facts, if any, cannot said to be wilful.

By applying the ratio of law declared in the above decision, it is found that since the earlier decisions of the Tribunal were in favour of the assessee, it has to be held that there was bona fide doubt about the inclusion of the cost of material in the cost of services. If that be so, no main fide can be attributable to the appellant so as to invoke the extended period of limitation.

In asmuch as the major period involved under the present appeal is beyond the normal period of limitation, the Tribunal is of the view that the demand for that purpose is hit by time bar. Accordingly, the appellant is liable to pay service tax for the period which falls within the period of limitation. The authorities below are directed to requantify the demand accordingly.

As regards penalty, having held that there was no mala fide on the part of the appellant, who could have entertained a reasonable belief and the law having been declared with the Larger Bench judgment, the tribunal is of the view that no penalty is required to be imposed on the appellants in terms of provisions of Section 80 of the Finance Act, 1994. Penalty set aside.

Decision:- Appeal disposed off accordingly.

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PJ/Case Laws/2011-12/1520

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