Whether value of consumables deductible from the assessable value?

PJ/Case law/2014-15/2288

Case:- COMMISSIONER OF CENTRAL EXCISE, LUCKNOW Vs M/S CHAMAN COLOR LAB & STUDIO

Citation:- 2014-TIOL-1321-CESTAT-DEL

Brief facts:- The respondent were providers of photography service. The period of dispute in this case was from September 2003 to March 2005. The point of dispute was as to whether the service tax was to be charged on the gross amount charged by the respondent from their customers or on the net amount charged after excluding the cost of paper and chemicals used in the photography service. The department being of the view that the service tax was to be charged on the gross amount and abatement of the value of paper and chemicals used in providing the photography service was not to be allowed, issued a show cause notice dated 23/03/07 to the respondent for demand of allegedly short paid service tax amounting to Rs. 8,83,785/- alongwith interest and also for imposition of penalty. The show cause notice had been issued by invoking extended period under proviso to Section 73 (1) of the Finance Act, 1994. The show cause notice was adjudicated by the Joint Commissioner vide order-in-original dated 30th April, 2008 by which the above-mentioned service tax demand plus education cess was confirmed alongwith interest thereon under Section 75 of the Finance Act, 1994 and beside this, penalty of equal amount was imposed on them under Section 78 ibid. However, on appeal to Commissioner (Appeals), the above order of the Joint Commissioner was set aside and the appeal was allowed by the Commissioner (Appeals) vide order-in-appeal dated 29/12/2008 against which this appeal had been filed by the Revenue.

Appellant’s contentions:- Heard Shri Yashpal Sharma, the learned DR who pleaded that the issue involved in this case stood decided in favour of the department by Larger Bench of the Tribunal in the case of Agarwal Colour Advance Photo System vs. CCE, Bhopal reported in 2011 (23) S.T.R. 608(Tri.-LB) = 2011-TIOL-1208-CESTAT-DEL-LB. He, therefore, pleaded that the impugned order was not correct. He also emphasized that longer limitation period under proviso to Section 73 (1) of the Finance Act, 1994 had been correctly invoked and penalty under Section 78 had been correctly imposed, as the respondent had suppressed the fact of excluding the value of paper and other chemicals from the department.

Respondent’s contentions:- None appeared for the respondent, though a notice for hearing had been sent to them well in time. In view of this, so far as the respondent were concerned, the matter was being decided ex-parte.

Reasoning of judgment:- So far as the case on merits, the issue stood decided in favour of the department by Larger Bench of the Tribunal in the case of Agarwal Colour Advance Photo System vs. CCE, Bhopal (supra) and therefore they held that the respondent were liable to pay service tax on the gross amount charged and the exclusion from the assessable value of the value of paper and other consumables and chemicals used for providing photography service was not permissible. However, they found that in this case, the period of demand was from September 2003 to March 2005 and the show cause notice invoking extended period under proviso to Section 73 (1) of the Finance Act, 1994 had been issued only on 23/03/07 and the same would survive only if the conditions for imposing proviso to Section 73 (1) exists. The Bench found that during the period of dispute, there were conflicting judgments of the Tribunal on the issue involved in this case as a result of which, this matter had been referred to a Larger Bench in the case of Agarwal Colour Advance Photo System vs. CCE, Bhopal (supra). Apex Court in the case of ContinentalFoundation Jt. Venture vs. CCE, Chandigarh-I reported in 2007 (216) E.L.T. 177 (S.C.) = 2007-TIOL-152-SC-CX and also in the case of Jaiprakash Industries Ltd. vs. CCE, Chandigarh reported in 2002 (146) E.L.T. 481 (S.C.) = 2002-TIOL-633-SC-CX-LB had held that when on a particular issue during a particular period there was divergence of views on account of conflicting judgments of the Tribunal or High Courts and the assessee had paid tax in accordance with one group of judgments in his favour, he would have to be treated on having acted in bonafide belief and longer limitation period for recovery of short paid tax cannot be invoked. They found, such circumstances exist in this case and hence longer limitation period under proviso to Section 73 (1) would not be invokable and, as such, the demand was time barred. For the same reason, penalty under Section 78 also would not be imposable. In view of this, the Revenue's appeal was dismissed.

Decision:-Appeal dismissed.

Comment:- The analogy drawn from the case is that service tax shall be payable on gross value charged for the service including the value of consumables used in providing such services in view of the decision of the larger bench of the Tribunal in the case of Agarwal Colour Advance Photo System. However, as during the period under consideration, there were contrary decisions on the issue, it was held that the extended period of limitation was not invokable and the appeal filed by the revenue was dismissed even when it was strong on merits.

{Prepared by: Ranu Dhoot}

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PJ/Case law/2014-15/2288

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