Consumation of goods not necessarily be included in value of Service Tax, HC

Facts in Brief:

1. The appellants render Photography services, which are liable to Service Tax under the Finance Act, 1994. The issue involved in all these appeals is the correct valuation of the services rendered by the appellants for the purpose of discharge of Service Tax.

2. The contention of the appellants is that the value of materials, consumables, etc., used for providing the photography services should be deducted from the gross receipt in order to arrive at the correct value of services for the purpose of calculating the Service Tax. On the other hand, Revenue contends that such a deduction is not available as there are no sales of the materials, consumables, etc. by the appellants.

HC held as under,

3. Presently, what is of interest to us is the answer to question (E). What is 'aspect theory?' This has been stated in Federation of Hotel & Restaurant Association of India v. UOI 1989 (3) SCC 634 as "Subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects." The Apex Court observed that the Kerala High court in the Escotel case erred in including the cost of the service in the value of SIM card by relying on the aspects doctrine.

4. They had categorically answered that the aspect theory would rot apply to enable the value of the services to be included in the sale of goods or the price of goods in the value of services. The implication of the above decision for the present case is that in the services relating to photography, if certain goods and materials are consumed, then the value of those goods and materials cannot be included in the value of the services for levy of Service Tax. In the result, the decision of this Tribunal in the Adlabs case is correct and legal in the light of the Apex Court's decision in BSNL case. Hence, we allow the appeals with consequential relief if any. We also observe that the Circular dated 3-3-2006 is not in accordance with the ratio of the decision of the Apex court in the BSNL case. 

Case Reference - Shilpa Color Lab vs Commissioner Of C. Ex.