. 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 photograp

PJ/Case Law/2019-2020/3600

M/s Agrawal Colour Advance Photo System v/s Commissioner of Central Excise and Another (CEA Nos.1/13), M/s Agrawal Colour Quick System v/s Commissioner of Central Excise and Another (CEA Nos.2/13) & M/s Agrawal Colour Photo Industry v/s Commissioner of Central Excise and Another (CEA Nos.3/13) Madhya Pradesh High Court
Brief Facts: - The Applicant is engaged in the business of processing, printing and exposure of colour photographic film and obtained service tax registration for providing service on photography. During the scrutiny of ST-3 returns, it was found that the appellant had not paid the service tax correctly and the Service tax of Rs.6,76,386/- for the period 16.07.2001 to 31.03.2005 was demanded.
Issue: - 1.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?
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Applicant Contention: -The contention of the Applicant is that it was paying service tax on 30% of the value of the invoices raised on account of service rendered to the customers and that the value of photography paper and processing chemicals used by it in developing of photographic film should be allowed for deductionto while computing service tax liability as it falls in the category of storage device. He further informed that the explanation to Section 67 of the Act did not include the cost of unexposed photography on recorded magnetic tapes on such other storage device if any sold to customers during the course of providing services. The applicable service tax was paid on service part on photographic service and in respect of balance amount which stands for material sold to customers; they are exempted in terms of Notification No.12/2003-ST dated 20.06.2003.
The applicant has also filed an appeal before the Tribunal referring to case where the Larger Bench of the Apex Court in Bharat Sanchar Nigam Limited vs. Union of India and others, (2006) has held that service tax can only be levied on the service portion and not on the cost of material. However the same was dismissed by the Tribunal where 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 applicant then preferred a writ before the MP high court.
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Reasoning of the Judgement: -The Hon?ble High Court has referred to the case laid down by the Apex Court in M/s Pro. Lab?s case (supra), it can be safely held that photography service, which has both the elements of goods and services is covered under works contract, where it was held by the Apex Court that part of processing and supplying of photographs, photo prints and negatives, which have ?goods? component exigible to sales tax is constitutionally valid, it is held that value of photography service has to be determined in isolation of cost of goods such as photography paper, consumables and chemicals with which image is printed, negatives and other material which has ?goods? component liable to sales tax.
Held: - The Hon?ble High Court has rightfully held the decision in favour of the applicant while giving reference to the above mentioned case where the cost of goods sold is liable to sales tax and not liable to service tax on the whole component and the benefit of the exemption notification 12/2003-ST dated 20^th June 2003 will be available to the applicant.????
Comment: - The classification as to the principal component of either goods or the service component has always been a point of dispute even in the earlier tax regime and also in the current GST regime. Always a reference to the cited case laws should be given before the departmental authorities while appearing before the court for stronger contention.
?Prepared By-CA Kartik Singhvi

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PJ/Case Law/2019-2020/3600

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