The Madras High Court has held that service tax cannot be levied on incidental services including fitment of the wig and the preparation of the scalp to receive the wig as the same are connected to the main activity of sale for which Value Added Tax (VAT) and excise duty is already paid.
The petitioner, White Cliffs Hair Studio Private Ltd, is a Hair Studio stated to be engaged in Non-surgical Hair Replacement/Cranial Prosthesis for persons who have suffered hair loss. The wig, once manufactured, is to be fitted, the first step is to measure the head, then test the skin for endurance. The wig is thereafter prepared to the specific dimensions of the client. An option is also available to colour the wig if desired. The department observed that the above said services attract service tax as the activity would fall squarely within the definition of service under Section 65B(44) of the Finance Act, 1994.
The question before the Court was that to decide whether the intrinsic or dominant nature of the transaction is one of sale of a wig or rendition of service.
Dr. Justice Anita Sumanth observed that “Without question, the integral component of the transaction in the present case is the wig itself, as without the wig, there would be no transaction perse. The fitment of the wig and the preparation of the scalp to receive the wig is, in my view, incidental to the product itself.”
Noting that a composite contract is one that would involve components of sale and service whereas an indivisible contract, also involving components of sale and service, is one where the distinction between the two is very fine and difficult to determine, the Court observed that “At paragraph No.28 of the Order, the Bench states that payments of service tax as also VAT are mutually exclusive and their applicability must be determined based on the nature of the transaction. So too in the present case. The dominant transaction in the present case is the manufacture and supply of the wig.”
While allowing the writ petition, the Court held that “To be noted that a client could well purchase a wig without opting for the service of fitment or maintenance. The services of preparation of the scalp, fitment as well as maintenance of the wig, are merely to facilitate andaid in the utilization of the product and would have no relevance in the absence of the wig.”
Mr. Joseph Prabakar appeared for the petitioner-assessee.
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