The High Court of Madhya Pradesh held that photography services, which has both the elements of goods and services, is covered under works contract and service tax cannot be levied on the goods component when VAT is already paid on the same.

The appellant is engaged in the business of processing, printing, and exposure of color photographic film and obtained service tax registration for providing service on photography as provided under Section 65(63) of the Service Tax Chapter V of Finance Act, 1994. During the scrutiny of ST-3 returns, it was found that the appellant had not paid the service tax correctly.

The substantial question of law was raised, Whether, while providing photography service whether the use of the paper upon which an image is printed using certain consumables and chemicals, being incidental to the provision of service, amount to sale of goods in terms of Article 366(29A)(b) of the Constitution and whether the value of photography service shall be determined in isolation of cost of such goods.

The appellant contended that appellants having once paid the VAT under the State Act as works contractor on the material and chemicals consumed in photography service, cannot be charged service tax on the same value.

The bench headed by Chief Justice Ajay Kumar Mittal and Judge Vijay Kumar Shukla held that photography service, which has both the elements of goods and services, is covered under works contract and such contracts can be subjected to sales tax by the States under Entry 54 of List II of Schedule II of the Constitution of India.

The court further noted that after the 46th Amendment, there is no question of dominant nature test applying in photography service and the works contract, which is covered by Clause (29A) of Article 366 of the Constitution where the element of goods can be separated, such contracts can be subjected to sales tax by the States under Entry 54 of List II of Schedule II. Once that is so, the value of photographic paper and consumables cannot be included in the value of photography service for the purposes of imposition of service tax.

“Thus, in the light of the judgment of the Apex Court in M/s Pro Lab, wherein it is held that part of processing and supplying of photographs, photo prints, and negatives, which have “goods” component exigible to sales tax is constitutionally valid, it is held that value of photography service has to be determined in isolation of cost of goods such as photo paper, consumables and chemicals with which image is printed, negatives and other material which has “goods” component liable to sales tax. Accordingly, the substantial question of law is answered in favor of the assessee and against the Revenue,” the bench said.