Board vs Supreme Court - whose decision prevails?

By Vijay Kumar

Yesterday we carried a report with a Supreme Court judgement about Service Tax on photography service. A little recap is needed. Board had in F.No.B.11/1/2001-TRU) dated 9th July, 2001 clarified,

The value of taxable 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. The service provider claiming benefit of the cost of film should be advised to show them clearly on the invoices along with description and particulars of the film. Otherwise, the claim will not be considered as admissible. No other cost (such as photographic paper, chemicals, etc.) is excluded from the taxable value.

This clarification was challenged in the Kerala High Court and in the Supreme Court. The Apex Court in 2005-TIOL-135-SC-ST which we carried yesterday, upheld the validity of the circular as well as the Act. The Court had observed,

When a photographer undertakes to take photograph, develop the negative, or do other photographic work and thereafter supply the prints to his client, he cannot be said to enter into a contract for sale of goods. The contract on the contrary is for use of skill and labour by the photographer to bring about a desired result. The occupation of a photographer, except in so far as he sells the goods purchased by him, in our opinion, is essentially one of skill and labour

So the plea of the petitioner that taxing the gross value was dismissed by the highest court of the land. It had already been dismissed earlier by the Kerala High Court in 2002.

Now an interesting fact has come to our notice.

The Board, in a letter addressed to the Punjab Colour Lab Association in 2004, that is two years after the Kerala High Court judgement, clarified that exemption is available in respect of the input material consumed/sold. So as per this letter, photographers need not pay tax on the value of paper, chemicals etc consumed or sold if they make a mention of the inputs in the invoice. As per the Board's clarification to the Association, many members are issuing invoices like this.

1. Sale of photo paper 15.00

2. sale of chemistry ( what they mean is chemicals) 10.00

3. charges for picture 10.00

4. ST on 3. 1.20

Total 36.20

But according to the Supreme Court Service Tax is payable on Rs. 35/- and not on Rs. 10/-.

Now what prevails? Board clarification or Supreme Court judgement? Board's letter to the Association is extracted here for your perusal. The least that is expected of the Board is to give a clarification on the latest position - publicly please!