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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

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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

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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.

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