Page 75 - GSTL_16th July 2020_Vol. 38_Part 3

2020 ] AGRAWAL COLOUR ADVANCE PHOTO SYSTEM v. COMMISSIONER OF C. EX. 313
of 70% was denied by the Commissioner and demand of service tax was con-
firmed on the assessee along with interest and penalty. The appeal preferred by
the assessee was considered and decided by a three-member Special Bench of the
Tribunal reported as Safety Retreading Company (P) Ltd. v. Commissioner of Central
Excise, Salem, (2012) 34 STT 64 (Chennai) = 2012 (26) S.T.R. 225 (Tribunal), where-
in coupled with the Notification No. 12/2003-S.T., dated 20-6-2003 a similar issue
was considered by the Larger Bench of the Tribunal: “whether in a contract for
retreading of tyres, service tax is leviable on the total amount charged for re-
treading including the value of the materials/goods that have been used and
sold in the execution of the contract or exemption to material component therein
can be granted”. The question was whether maintenance and repair service can
be treated as service under “works contract” for service tax purposes. The Appel-
late Tribunal by majority view, upheld the demand, inter alia, on the ground that
‘maintenance and repair service’ being a specific service is to be treated as service
under “works contract” for service tax purposes. On appeal, the Apex Court set
aside the said majority view of the Special Bench of the Tribunal and held that
Section 67 of the Finance Act clarifies that costs of parts or other material, if any,
sold (deemed sale) to customer while providing maintenance or repair service is
excluded from service tax subject to furnishing adequate and satisfactory proof
by the assessee and this position has been further clarified in Notification dated
20-6-2003 and C.B.E. & C. Circular dated 7-4-2004. It was held that component of
gross turnover in respect of which assessee had paid taxes under local Act with
which it has registered as works contractor is excluded from service tax.
19. In view of the law 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. Thus, in a
works contract which involves transfer of property, the provisions as contained
in Article 366(29A) of the Constitution are attracted. Therefore, in the light of
sub-clause (b) of Clause (29A) of Article 366 of the Constitution, in execution of a
works contract when there is transfer of property even in some other form than
in goods, the tax on such sale or purchase of goods is leviable. In this view of the
matter, after the 46th Amendment, there is no question of dominant nature test
applying in photography service and the works contract, which is covered by
Clause (29A) of Article 366 of the Constitution where the element of goods can be
separated, such contracts can be subjected to sales tax by the States under Entry
54 of List II of Schedule II. Once that is so, value of photographic paper and con-
sumables cannot be included in the value of photography service for the purpos-
es of imposition of service tax. Thus, in the light of the judgment of the Apex
Court in M/s. Pro Lab (supra), wherein it is held that part of processing and sup-
plying of photographs, photo prints and negatives, which have “goods” compo-
nent exigible to sales tax is constitutionally valid, it is held that value of photog-
raphy service has to be determined in isolation of cost of goods such as photog-
raphy paper, consumables and chemicals with which image is printed, negatives
and other material which has “goods” component liable to sales tax. According-
ly, the substantial question of law No. 1 is answered in favour of the assessee and
against the Revenue.
20. Having answered the substantial question of law No. 1 in favour of
the assessee, the substantial question of law No. 2, which already stands con-
cluded while dealing with the question of law No. 1, is also answered in favour
of the assessee and it is held that the term ‘sale’ appearing in exemption Notifica-

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