By TIOL News Service

KOLKATA, AUG 09, 2018: THE petitioner is a Government of West Bengal undertaking and is primarily engaged in the business of software technology. Election Commission of India introduced the system of issuing Electoral Photo Identity Card (EPIC) to the citizens of India. Election Commission took the assistance of the petitioner for preparation of EPIC.

The petitioner was awarded two contracts for preparation of Electoral Photo Identity Card (EPIC).

SCN was issued to the petitioner demanding service tax, as according to the department, the preparation of EPIC includes taking of photographs of voters by Digital Camera, processing, lamination and, therefore, such activity comes within the purview of photography service.

In the petition, while assailing the SCN, the provisions of Sections 65(78), 65(79) and 65(105)(zb) of the FA, 1994 are also challenged as being ultra vires the Constitution of India.

It is submitted that the petitioner is neither engaged in the business of photography studio or agency nor is the petitioner rendering any service of photography. Furthermore, in one of the contracts, only 50 paisa has been attributed as the cost of the photography; that the contracts cannot be broken up into different segments and one segment be made chargeable to Service Tax. Reliance is placed on the decisions in 2015-TIOL-187-SC-ST (Larsen & Toubro Ltd.), 2007-TIOL-803-CESTAT-BANG (CMC Limited), 2006-TIOL-15-SC-CT-LB (Bharat Sanchar Nigam Ltd.) and the Board Circulars 104/7/2008-S.T. dated August 6, 2008, No. 334/1/2008 dated February 29, 2008 & No. 334/4/2006-TRU dated February 28, 2006 in support.

The ASG appearing for the Revenue submitted that since the petitioner has not pressed the challenge to the vires of the various provisions of the Act, then, the show-cause notice cannot be said to be without jurisdiction; that the Writ Court need not interfere when a show-cause notice is under challenge as the issues with regard to the show-cause notice can be raised and adjudicated upon by the adjudicating authority.

It is further submitted that, Section 65(105)(zb) of the Act of 1994 makes any service rendered "in relation to" photography taxable and since EPIC cannot be prepared without photography, the contention of the petitioner that it is not rendering any service ‘in relation to' photography is fallacious. Case laws cited in support are 2003-TIOL-19-HC-KERALA-ST (Kerala Colour Lab. Association), 2005-TIOL-135-SC-ST (C.K.Jidheesh) & 2007-TIOL-135-SC-CX (Solaris Chemtech Ltd. & Ors.).

The Calcutta High Court extracted the provisions viz. Sections 65(19), (76b), (78), (79), (105)(zb), 65A, 66 and 67 of the Finance Act, 1994 and inter alia observed -

++ Photograph is one of the components of the work required to be discharged by the petitioner. The ultimate product is EPIC. The contracts are pre 2007. The subject contracts cannot be said to limit itself to photography. Preparation of a photograph or photography is not the sole purpose of the contracts. The end product is EPIC. Such end product involves a photograph of a voter. The photograph of the voter incorporated in EPIC is not a standalone product.

++ To my understanding, the contract for EPIC cannot be divided into separate compartments to say that, photography or photograph is a separate compartment. It is indivisible. Therefore, on the strength of Larsen & Toubro Ltd. (supra) such contracts cannot be divided to bring it under the Service Tax net assuming that, the petitioner was rendering the service of photography. In any event, as noted above, the contracts in question are for preparation of EPIC. The petitioner cannot be said to have rendered any photographic services to an individual or to the person who had entered into the contract with the petitioner.

++ In CMC Limited (supra), CESTAT, South Zonal Bench, Bangalore has held that, issue of EPIC cannot be considered to be falling within the definition of "photography" and "photography studio or agency" in terms of Sections 65(78) and 65(79) of the Finance Act, 1994. It has also held that, activities carried out by the parties are sovereign activity performed by the State functionaries and the same cannot be brought under the tax limit. The petitioner herein is also rendering the same service as that of CMC Limited (supra). The department, therefore, cannot take a different stand than the one which is binding upon it by virtue of CMC Limited (supra).

++ Sujal Developers (supra) has held that, a developer is not liable to pay Service Tax under Section 65(105)(zzzh) of the Finance Act, 1994, as in such a situation, there is no service provider and service receiver… Applying such analogy to the facts of the present case, taking a photograph of a person in the process of preparation of EPIC, would be self-service and would not attract Service Tax.

On the submission of the ASG that the Writ Court need not interfere at the show cause notice stage, the High Court noted -

++ Courts are ordinarily slow to interfere with a show-cause notice. However, if the show-cause is demonstrated to be without jurisdiction, then, a writ is maintainable. Moreover, the present writ petition is pending since 2008. It has been heard after completion of affidavit. At this stage, to require the petitioner to reply to the showcause notice particularly when the liability of the petitioner to pay Service Tax is not attracted in the fact scenario of the present case, would be harsh.

Conclusion: The petitioner not having rendered any service of photography is not liable to pay Service Tax. The impugned show-cause notice is, therefore, without any jurisdiction.

The Writ Petition was allowed.

The deposit (s) made by the petitioner pursuant to the Interim order dated February 13, 2008 was directed to be refunded along with interest within four weeks.

(See 2018-TIOL-1553-HC-KOL-ST)