Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4
CASE NO.:
Writ Petition (civil) 507 of 2002
PETITIONER:
C. K. Jidheesh
RESPONDENT:
Union of India & Ors.
DATE OF JUDGMENT: 27/10/2005
BENCH:
S. N. Variava & P. P. Naolekar
JUDGMENT:
J U D G M E N T
S. N. VARIAVA, J.
By this Writ Petition, the Petitioner seeks to challenge a letter
dated 9th July, 2001, issued by the Ministry of Finance as being
arbitrary and discriminatory being in violation of Articles 14 and
19(1)(g) of the Constitution, and also violative of the Finance Act,
1994 as amended by the Act 14 of 2001. The Petitioner also prays for
an Order directing the Respondent to bifurcate the gross receipts of
processing of photographs into the portion attributable to goods and
that attributable to services. The Petitioner claims that the
Respondents must tax only that portion of the receipts, which is
attributable to the services rendered.
Briefly stated the facts are that the Petitioner is the owner of one
Ajantha Colour Lab, Kottakkal, Malappuram, Kerala. The Petitioner is
running the business of developing and printing of colour photographic
films. The Petitioner develops the negatives supplied by the customer
and gives to the customer positive prints as per the order of the
customer. By the impugned letter it has been clarified that the
service tax would be on the entire amount recovered by persons like
the Petitioner.
Mr. Mohd. Yusuf raises a preliminary objection. He submits that
the Kerala Colour Labs Association had filed a Writ Petition in the
Kerala High Court challenging the constitutional validity of the
provisions in the Finance Act, which permits levy of service tax on
services like those rendered by the Petitioner. He submits that that
Writ Petition came to be dismissed by a Judgment of the Kerala High
Court dated 31st January, 2002. He points out that against that
Judgment two SLPs were filed. SLP (C) No. 11614 of 2002 was
dismissed on 10th July, 2002. He points out that the second SLP
bearing CC No. 6811 of 2002 filed by the Kerala Colour Labs
Association was also dismissed on 8th January, 2003. He points out
that in the synopsis attached to this Petition it is stated that the issues
covered in this Writ Petition are already pending before this Court in
the SLP filed by the Kerala Colour Labs Association. He submits that in
view of the dismissal of the two SLPs challenging the constitutional
validity of the provision levying service tax on persons like the
Petitioner, this Petition should also be dismissed.
On the other hand, Mr. Venugopal submits that on 8th Janaury,
2003 when this Court dismissed SLP (CC) No. 6811/02 (Kerala Colour
Lab Association’s SLP), this Court bifurcated this Writ Petition and
listed it in the next week. He submits that thereafter this Court has
issued Rule in this Writ Petition on 17th January, 2003. He submits
that therefore this Court has already recognized the fact that this Writ
Petition is not covered by the dismissal of Kerala Colour Labs
Association’s SLP.
A reading of the averments made by the Petitioner, in the
synopsis, in the Writ Petition and in I.A. No. 4 filed by him, makes it
clear that the Petitioner was initially claiming that the issues in this
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4
Petition and in the pending SLP of Kerala Colour Labs Association were
the same. However, on finding that against the Judgment of the
Kerala High Court dated 31st January, 2002, SLP (C) No. 11614 of
2002 has been dismissed, this Petition was got separated from Kerala
Colour Labs Association’s SLP on the ground that the issues were
similar to those raised in an SLP filed by the State of Meghalaya
challenging an Order of the Gauhati High Court dated 5th September,
2001. It is for that reason that Rule was issued on 17th January, 2003
and there was an Order tagging it with SLP (CC) No. 4253 of 2002
(which is the SLP filed by the State of Meghalaya). We have looked at
the papers of the SLP filed by the State of Meghalaya. We find this
Petition has nothing to do with that SLP. It is for that reason that this
Writ Petition was delinked from the SLP filed by the State of Meghalaya
by an Order dated 7th July, 2004. We find substance in the contention
that the Writ Petition should have been dismissed with the dismissal of
the SLP filed by Kerala Colour Labs Association. However, as another
Court has already issued rule, judicial discipline requires that the
matter be now heard on merits.
As has been mentioned above, the challenge is ostensibly to the
letter issued by the Ministry of Finance. But the real challenge is to
the amendment in the Finance Act. That letter is only clarifying what
Section 67 of the Finance Act, 1994, as amended by Act 14 of 2001,
provides.
Section 65(47) defines Photography as including still
photography, motion picture photography, laser photography, aerial
photography and fluorescent photography. Section 65(48) defines
Photography studio or agency as including any professional
photographer or a commercial concern engaged in the business of
rendering service relating to photography. Section 65(72)(zb) defines
Taxable service in relation to photography studio or agency as any
service provided to a customer, by a photography studio or agency in
relation to photography, in any manner. Section 66 is the charging
Section. Sub-section 5 levies a service tax at the rate of five per cent
of the value of the taxable services referred to in clause (zb) of Sec.
65 (72). Section 67 provides that the value of taxable service shall be
the gross amount charged by the service provider for such service
rendered by him. The Explanation to Section 67 exempts only the cost
of unexposed photography film, unrecorded magnetic tape or such
other storage device if any, sold to the client during the course of
providing the service.
As some doubt was raised regarding the interpretation of these
provisions by that Letter the Ministry of Finance has merely clarified as
follows:
"4. The value of taxable service [in photography service] is
the gross amount charged from the customer for the
service rendered. However, the cost of unexposed
photography films sold to the customer is excluded. .......
No other cost (such as photographic paper, chemicals,
etc.) is excluded from the taxable value."
Thus, a mere challenge to such a clarificatory letter is not
enough. The challenge has to be to the provisions of the Finance Act.
The provisions of the Finance Act had been challenged by the
Kerala Colour Labs Association. That challenge had been repelled by
the Kerala High Court and an SLP against that Judgment has already
been dismissed by this Court. We have read the Judgment of the
Kerala High Court. In our view, the Judgment correctly considers all
aspects including the aspect of double taxation. We find no infirmity in
that Judgment. The principles set out therein fully apply here also.
There is one further difficulty in the way of the Petitioner. This
Court has, in the case of Rainbow Colour Lab & Anr. vs. State of
M. P. & Ors., reported in (2000) 2 SCC 385, held that contracts of the
type entered into by persons like the Petitioner are nothing else but
service contracts pure and simple. It is held that in such contracts
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4
there is no element of sale of goods. This Judgment is binding on this
Court. In view of this Judgment, the question of directing the
Respondent to bifurcate the receipts into an element of goods and the
element of service cannot and does not arise. We see no substance in
the contention that facts in Rainbow Colour Labs case were different
inasmuch as in that case the Court was dealing with a case where
photographers take photographs, develop them and then give the
photos to the customer. In our view, the ratio of Rainbow Colour Lab’s
case also applies to cases like the present.
Faced with this situation, Mr. Venugopal submitted that the
correctness of Rainbow Colour Lab’s case has been doubted by a
Bench of three Judges in the case of Associated Cement Companies
Ltd. vs. Commissioner of Customs, reported in (2001) 4 SCC 593.
He relied upon the following observations of this Judgment:
"26. In arriving at the aforesaid conclusion the Court
referred to the decision of this Court in Hindustan
Aeronautics Ltd. v. State of Karnataka [(1984) 1 SCC 706
: 1984 SCC (Tax) 90] and Everest Copiers [(1996) 5 SCC
390]. But both these cases related to the pre-Forty-sixth
Amendment era where in works contract the State had no
jurisdiction to bifurcate the contract and impose sales tax
on the transfer of property in goods involved in the
execution of a works contract. The Forty-sixth
Amendment was made precisely with a view to empower
the State to bifurcate the contract and to levy sales tax on
the value of the material involved in the execution of the
works contract, notwithstanding that the value may
represent a small percentage of the amount paid for the
execution of the works contract. Even if the dominant
intention of the contract is the rendering of a service,
which will amount to a works contract, after the Forth-
sixth Amendment the State would now be empowered to
levy sales tax on the material used in such contract. The
conclusion arrived at in Rainbow Colour Lab case, in our
opinion, runs counter to the express provision contained in
Article 366(29-A) as also of the Constitution Bench
decision of this Court in Builders’ Assn. of India v. Union of
India [(1989) 2 SCC 645]."
He submitted that, in view of these observations, the Judgment in
Rainbow Colour Lab case must be deemed to have been overruled
and/or in any event it is required to be reconsidered by a larger Bench.
We are unable to accept this submission. In Associated Cement
Companies’ case, the question was whether or not custom duty could
be levied on drawings, designs, diskettes, manuals etc. The argument
there was that these were intangible properties and not goods as
defined in Section 2(22) of the Customs Act. The question of levy of
service tax did not arise in that case. The observations relied upon are
mere passing observations and do not overrule Rainbow Colour Lab’s
case. Even otherwise, the questions raised in this Petition are fully
covered and answered by the decision of the Kerala High Court, which
we confirm as laying down the correct law.
It was next submitted by Mr. Venugopal that neither Rainbow
Colour Lab’s case nor Kerala Colour Lab’s case considered the question
of discrimination which has been raised by the Petitioner in this Writ
Petition. He submits that the Petitioner has also challenged the
discriminatory attitude of the Respondent in levying service tax on
gross receipts in photographic business when on other pure service
providers like stock brokers, travel agent etc. the tax is levied only on
the commission. In our view, there is no discrimination. It has
already been held by this Court that such cases are contracts of
service pure and simple. In other cases, referred to, there is a
bifurcation because service is provided and goods are sold.
We thus see no substance in this Writ Petition. The same stands
dismissed. There will be no order as to costs.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4