C.K. JIDHEESHversusUNION OF INDIA AND ORS.

                                   C.K. nDHEESH
                                           v.
                            UNION OF INDIA AND ORS.

                                 OCTOBER 27, 2005

B                    (S.N. VARIAVA AND P.P. NAOLEKAR, JJ.]


          Finance Act, 1994-'Section 67 (as amended by Act 14 of 2001)-
    Photography service-Taxation of-On the gross amount charged by service
    provider-Writ Petition challenging the taxation as arbitrary and
C   discriminatory-Plea of serVice provider to bifurcate the receipts into element
    of goods and element of service and charge tax only in respect of service-
    Held: Taxation on gross amount justified-The receipts are not bifurcable-
    The contracts in question entered into by service providers are contracts
    pure and simple..,-There is no discrimination-Constitution of Jndia,1950-
D   Articles 14 and 19(/)(g).

          Petitioner was running business of developing and printing colour
    photographic films. By a letter from Ministry of Finance the value of taxable
    service was ascertained as gross amount charged from the Customers. The
    cost of goods used for possession except unexposed photography films were
E   not excluded from the taxable value. Petitioner filed Writ Petition before this
    Court challenging the letter as violative of Arts. 14 and 19(l)(g) of the
    Constitution oflndia and of the Finance Act, 1994 as amended by Act 14 of
    2001. Petitioner prayed to tax only that portion of the receipts which was
    attributable to the service rendered after bifurcating the receipts into element
F   of goods and element of service.

          Dismissing the petition, the Court

          HELD: Section 67 of Finance Act, 1994 provides that the value of taxable
    service shall be the gross amount charged by the service provider for such
G   service rendered by him. The Explanation to Section 67 exempts only the cost
    of unexposed photography film, unrecorded magnetic tape of such other storage
    device if aoy, sold to the client during the course of providing the service.
    Contracts of the type entered into by persons like the Petitioner are nothing
    else but service contracts pure and simple. In such contracts there is no

                                          862
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                     C.K.JlDHEESHv. U.0.1. [VARIAVA,J.]                      863
element of sale of goods. Hence the question of directing the Respondent to A
bifurcate the receipts into element of goods and element of service cannot
and does not arise. There is also no discrimination. (865-B; 866-B; 867-El

      Rainbow Colour Lab and Anr. v. State of MP. and Ors., (2000) 2 SCC
385, relied on.
                                                                                   B
    Associated Cement Companies Ltd v. Commissioner of Customs, [2001)
4 sec 593, distinguished.

      CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 507 of2002.

      (Under Article 32 of the Constitution .of India.)                            c
     Krishnan Venugopal, Syed Shahid Hussain Rizvi, Prasad Vijay Kumar
and Siddarth Singh for the Petitioner.

     T.M. Mohd. Yusuf, S. Wasim A. Qadri, P. Parmeswaran and B. Krishna
Prasad for the Respondents.                                             D
      The Judgment of the Court was delivered by

       S.N. VARIA VA, 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(J)(g) of E
the Constitution, and also violative of the Finance Act, 1994 as amended by
the Act 14 of 200 I. 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.                                           F
       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 G
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 H
    864                     SUPREME COURT REPORTS [2005] SUPP. 4 S.C.R.

A 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 I 0th July, 2002. He points out that the second SLP bearing
B   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
C   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 January, 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
D   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
E 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 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
p 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, 200 I.
  It is for that reason that Rule was issued on 17th January, 2003 and there was
  an Order tagging it with SLP (CC) No. 4~53 of 2002 (which is the SLP filed
  by the State of Meghalaya). We have looked at the papers of the SLP filed
G 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 de linked 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
H another Court has already issued rule, judicial discipline requires that the
                    C.K. .IIDHEESHv. U.0.1. [VARIAVAJ.]                   865
matter be now heard on merits.                                                   A
      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.
                                                                                 B
       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 C
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 D
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             E
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           F
       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.
                                                                                 G
      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 H
    866                      SUPREME COURT REPORTS l2005] SUPP. 4 S.C.R.

A taxation. We find no infinnity 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 and Anr. v. State of M. P. and Ors.,
  reported in [2000] 2 sec 385, held that contracts of the type entered into by
B persons like the Petitioner are nothing else but service contracts pure and
  simple. It is held that in such contracts 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
C 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.

D          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 v. Commissioner ofCustoms,
    reported in [2001] 4 SCC 593. He relied upon the following observations of
    this Judgment:

E          "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] l.SCC 706: [1984] SCC (Tax) 90 and Everest
           Copiers [I 996] 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
F          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
G          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
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                    C.K. JIDHEESH v. U.0.1. [VARIAVA,l.)                  867
        contained in Article 366(29-A) as also of the Constitution Bench A
        decision of this Court in Builders' Assn. of India v. Union of India,
        [1989] 2 sec 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.,                           B
       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 ihtangible properties and not goods as defined in Section
2(22) of the Customs Act. The question of levy of service tax did not arise C
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
                                                                                D
Lab's case ~nor Kera/a 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 E
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 $tands           F
dismissed. There will be no order as to costs.

KK.T.                                                      Petition dismissed