Facts in Hand:
Applicant (‘Photo Products Company Pvt. Ltd.’) is printing content supplied by the customers on photographic paper which is already present with applicant. The customers who wish to publish posters, pictures, photographs, design layouts etc. provide the content as files on digital media such as CD, DVD, HDD or pen drive. The file is transferred to the printer through a computer and the printer exposes the contents of the file on to the photographic paper. Digital images so obtained on light sensitive photographic paper are further processed in photographic chemical. This activity from printing to processing is done either with Fuji Frontier Digital Minilab by means of laser exposure or with Durst Theta 76 HS Digital Printer by means of LED exposure, thereby transferring the content from an electronic device to printed material as per the customers’ requirements.
Question on which ruling was required?
An Advance Ruling is sought regarding the ‘nature’ and ‘classification’ of the activity- whether it is supply of ‘goods’ or ‘services’ and whether the activity carried out by the Applicant is taxable under HSN 4911 or SAC 9989.
1. Supply of printed pictures and photographs and similar items, reproduced with the aid of computer or any other device, is classifiable under Heading 4911 of the First Schedule of the Custom Tariff Act, 1975, which is aligned to the GST Act for the purpose of classification. Heading 4911 is as follows:
|Chapter 49||Printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans|
|4911||OTHER PRINTED MATTER, INCLUDING PRINTED PICTURES AND PHOTOGRAPHS|
|4911 10-||Trade advertising material, commercial catalogues and the like:|
|4911 10 10—||Posters, printed|
|4911 10 20—||Commercial catalogues|
|4911 10 90—||Other|
|4911 99 90—||Other|
2. From the above description, it is clear that classification as given in heading 4911 concerns with pre-printed materials or prints which are supplied as such.
3. However in the present case, the content of the printed matter is specific to the customer and printed at the request of customers. It is not pre-printed.
4. Further, the applicant does not have any ownership to the content at any point of time. Hence, transfer of ownership (title) is an essential condition for supply of goods (Paragraph no. 1(a) of Schedule II to the GST Act) is not satisfied.
5. The photo prints supplied by them to their customers are not marketable commodities in the open market and as goods they have no value to persons other than the specific customer who provides the input content. Hence, it is clear that, the printed material have no value as independent goods.
6. In the case of Rainbow Colour Lab (2000) 2 SCC 385, the Apex Court held that the dominant intention of the photo lab is provisioning service of printing where the supply of paper and chemicals are purely incidental. The Court held that the activity should be treated as “Service”.
7. In the case of State of Karnataka etc vs. M/s Prolab and Others, and in the case of C.K. Jideesh vs UOI activities of Photo Labs are considered to be “Works Contract”. However, the activity of “Printing” does not come under “Works Contract” under Section 2(119) of the GST Act. Hence, the judgments are not found to be relevant to the instant case.
8. Hence, the Applicant is providing a service, namely, the service of printing and is liable to be classified under SAC 9989 which reads as ‘Other manufacturing services; publishing, printing and reproduction services; materials recovery services’. Rate would be 12%.
|Case: Physical inputs (i.e. paper) and content belongs to recipient customer and printer (i.e. supplier) only provides printing services.||Case: Physical inputs (i.e. paper) and content belongs to printer (i.e. supplier).||Case: Physical inputs (i.e. paper) belongs to printer (supplier) and content belongs to recipient customer.|
|The same can be considered to be job-work.||The same is considered to be pre-printed.||The same can be classified as goods or services*|
|Taxable as services and SAC would be 9988.||Taxable as goods and HSN would fall either under chapter 48 or 49.||Discussed below*|
*CBIC issued a circular no. 11/11/2017-GST dated 20th October, 2017 which clarified that:
a. Supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc. printed with logo, design, name, address or other contents supplied by the recipient of such printed goods, are composite supplies and the question, whether such supplies constitute supply of goods or services would be determined on the basis of what constitutes the principal supply.
b. In the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of services
c. In case of supply of printed envelopes, letter cards, printed boxes, tissues, napkins, wall paper etc. falling under Chapter 48 or 49, printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore such supplies would constitute supply of goods falling under respective headings of Chapter 48 or 49 of the Customs Tariff.
d. Following ratios can be derived in respect :
i. These contracts shall always be composite supply. However, whether the same are to be treated as goods or services depends on the test of dominant intention along with various other tests.
ii. As per the circular, if the activity of printing gives essential character to the printed product, it will be supply of service. If the usage of the product gives essential character, it will be supply of goods.
iii. While per se products falling under chapter 48 have printing activity as ancillary as against chapter 49 in which printing activity is seems to be primary.
iv. Moreover, marketability condition among others to be classified as goods also needs to be tested based on preceding judicial precedents.
v. In most of the cases, rate is also same i.e. taxable at 12% irrespective of the fact whether it is classified as goods or services as in this ruling. Though obviously it needs to be correctly classified considering the fact that there is separate time of supply, place of supply, etc. provisions.
(Author Shivashish Karnani is a CA and can be reach out freely at firstname.lastname@example.org and on +91-9818472772)