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Closing in on camera

I own a photo lab with an attached studio. I undertake the job work of printing and developing of customers' films. I also shoot photographs in the studio and keep a small stock of film rolls and other photo accessories for sales. I have been charging service tax on the basis of the gross amount shown in my bills. Should I instead charge tax only on labour?

Rajesh Nair, Kottayam

It is true that there is a provision to exclude the value of the materials and goods sold by the service provider to the recipient of the service from the gross amount charged for the service provided while paying service tax.

As far as photography service is concerned in July 2001, the Union Government issued a circular to the effect that the value of the films sold while providing the service can be excluded but not the value of the paper, chemical, and so on, used for developing and printing operations.

These directions were challenged before the Supreme Court in the C. K. Jidheesh vs Union of India case. The apex court dismissed the petition and observed that the contracts of this type are service contracts pure and simple and in such contracts there is no element of sale.

Hence the method of showing the cost of paper, chemical, and so on, consumed while providing the above service and not charging service tax on the said amount will not be correct.

Now, under Cenvat Credit Rules, credit of duties paid on the input materials used for providing the output service is available. Therefore, if you follow the system of taking credit of duties paid on paper, chemical, etc., such credit can be used to pay the service tax. In such a situation, you need not resort to any splitting up of your charges between labour and material and, in effect, you will be paying tax on your value addition only.

Send in your queries on Service Tax, Excise and Customs to MentorAtYourService@gmail.com.

S. MURUGAPPAN

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