Case Law Details

Case Name : Agrawal Colour Advance Photo System Vs CCE (CESTAT Delhi)
Appeal Number : STA No. ST/301 of 2006
Date of Judgement/Order : 25/05/2010
Related Assessment Year :

SUMMARY OF THE CASE LAWS

Section 67 of the Finance Act, providing for levy of service tax on the gross amount charged by the service provider for the service provided plus/ minus the inclusions/ exclusions as mentioned in Explanation 1 to this section, satisfy the test for correctness of the measure prescribed by Supreme Court in the case of UOI v. Bombay Tyre International and there is no justification for excluding the cost of the goods/ materials used for providing the service.

RELEVANT EXTRACTS:

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5.5.2 This Honourable Kerala High Court’s judgement in case of Kerala Colour Lab Association vs. UOI (supra), the $LP against which has been dismissed by Honourable Supreme Court and the judgement of Honourable Supreme Court in case of CK Jidheesh vs, UOI (supra) wherein the correctness of Honourable Kerala Court’s judgement in case of Kerala Colour Lab Association vs. UOI has ^ been confirmed, are direct judgements on the issue of valuation of” photography service and according to these judgements, when a transaction is a service transaction and the service is a taxable service, the service tax would be chargeable irrespective of whether it is a work contract involving sale of goods or otherwise and the tax would be chargeable on the “gross amount charged” for the service provided.

5.5.3 In the case of UOI vs. Bombay Tyre International decided by Honourable Supreme Court vide judgement reported in 1983 E.L.T. – 1896, Honourable Court, rejecting the Assessee’s plea that since central excise is a tax on manufacture or production of goods, the value of excisable goods, for the purpose of charging duty, must be limited to only manufacturing cost plus manufacturing profit and administrative expenses, advertisement/ sales promotion expenses, selling expenses etc. cannot form part of the asses-sable value of the goods, upheld the levy of duty on the value determined under Section 4 of the Central Excise Act based on wholesale price at the factory gate at the time of removal, observing in para 13 of the judgement that – “when enacting a measure to serve as standard for assessing the levy, that legislature need not contour it along the lines which spell out character of the levy itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or produced, the value of an excisable articles must be limited to manufacturing cost plus manufacturing profit. We are of opinion that a broad based standard of reference may be adopted for the purpose of determining the measure of the levy. Any standard which maintains nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of levy. In our opinion, the original Section 4 and the new Section 4 of the Central Excise Act, satisfy this test.”

In our view, Section 67 of the Finance Act, providing for levy of service tax on the “gross amount charged” by the service provider for the service provided plus/minus the inclusions/exclusions as mentioned in Explanation 1 to this section, satisfy the test for correctness of the measure prescribed by Hon’ble Supreme Court in the above-mentioned judgement, and there is no justification for excluding the cost of the goods/materials used for providing the service

5.5.4 The observations of Honourable Supreme Court in para 46,47,48 and 49 of its judgement in case of BSNL vs. UOI (supra) / doubting the correctness of its judgement in case of CK Jidheesh vs. UOI (supra), which is a direct judgement on the issue of valuation of services in relation to photography, have to be treated as obiter dicta as the issue involved in BSNL vs. UOI (supra) was totally different – whether any transfer of right to use any goods is involved in telephone service provided by BSNL to its subscribers, which could be treated as deemed sale under Article 366 (29A) (d) of the Constitution and subjected to sales tax. From a reading of para 41 to 49 of Honourable Supreme Courts judgement in the case of BSNL vs. UOI it will be seen that –

(a) the discussion in these paras is on the question as to whether after 46th constitutional amendment every service contract could be vivisected for subjecting the goods component to sales tax and in this regard, in para 44 it was held that apart from kwork contract’ and ‘catering contract’ where the splitting of service and supply has been permitted in sub-clause (b) and (f) of Article 366 (29A), there is no other service which has been permitted to be so split, Court prescribed test based on substance of the contract, whether the parties to contract have in mind separate rights arising out of sale of goods, and if there is no such intention, there is no sale, in para 46 to 49, the Honourable Court doubted the “dominant intention test” prescribed for this purpose in case of Rainbow Colour Lab and another vs. State of M.P. (supra) and conclusion arrived at on the basis of “dominant intention test” with regard to the nature of photography contract – whether it is a divisible work contract covered by Article 366 (29) (b) or it is a an indivisible service contract. But as observed by Honourable Kerala High Court in para 11 of its judgement in case of Kerala Colour Lab Association vs. UOI, the question as to whether photography is a divisible work contract or an indivisible service contract is not relevant for charging service tax. Therefore, the observation of Hon’ble Supreme Court in para 46, 47, 48 and 49 of its judgement in case of BSNL vs. UOI (supra) are of no help to assessees for the issue of determining asses-sable value of; photography service.

Moreover, the valuation of taxable service or vires of Section 67 of the Finance Act, 1994 were not the issues under consideration in the case of BSNL, Hon’ble Supreme

Court, in case of CIT vs. Sun Engineering Work [1992 (198) ITR – 297 – SC] has held that it is neither desirable nor permissible to pick out a word or a sentence from a judgement of a court, divorced from its context of question under consideration and treat it to be the complete law.

5.5.4.1 Hon’ble Supreme Court in case of Bharat Petroleum Corporation Ltd & another vs. N.R. Vairamani & another

reported in AIR (2004) S.C – 4778, while holding that courts interpret statutes and their words are not to be interpreted as statutes, has observed as under :-

“Courts should not place reliance on decision with discussing as to how the factual situation fits in with the factual situation of the decision on which reliance is placed.

Observations of Courts are neither to be read as Enclid’s theorems nor as provisions of the statutes and that too taken out of context. These observations must be read in the context in which they appear to have been stated. Judgements of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it my become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgements. They interpret words of statutes; their words are not to be interpreted as statutes.”

5.5.4.2 Therefore, it may not be construed that the authoritative judgement of Apex Court in case of CK Jidheesh vs. UOI (supra) on the valuation of taxable services for charging service tax under Section 67 of the Finance Act, 1994 was doubted by Apex Court in the observations made in para 46, 47, 48 and 49 of its judgement in case of BSNL vs. UOI (supra).

5.5 We are, therefore, of the view that! in case of services in relation to photography, service tax has to be levied on pre “gross amount” charged by to service provider for providing such service, which would include value of all materials or goods used/ consumed or-becoming case for providing taxable service being inseparably and integrally connected with such service enabling the same perform able or capable of being performed. J The only deduction, permissible from the gross amount, will be of the value of unexposed film, if any, sold. With great respect the judgements of Tribunal in cases of Shilpa Colour Lab (supra) Adlab vs. CCE (supra), Deluxe Colour Lab & others :Mti vs. CCE, Jaipur & others (supra) are impediment and appears to be contrary to the law laid down by Supreme Court in file case of CK Jidhecsh vs. UOI (supra), which is a direct judgement of Honourable Supreme Court on the issue of valuation of photography service.

NF

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