Photo Printing & Developing from Soft Copy amounts to ‘Manufacture’: CESTAT Quashes Service Tax Demand [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), New Delhi, ruled that the activity of printing and developing photographs from soft copies amounts to “manufacture” and not a taxable photography service. It sets aside a service tax demand.

The background of the matter is that the service tax department alleged that the assessee, Gupta Color Lab had provided taxable photography services during the period 2016-17 but failed to pay service tax and also did not file ST-3 returns.

Based on third-party data and examination of financial documents such as profit and loss accounts, Form 26AS, and income tax returns, the department concluded that the assessee had outstanding service tax liability.

A show cause notice was issued invoking the extended period of limitation and it confirmed the demand of over ₹4.62 lakh along with equivalent penalty and additional penalty under Section 70 of the Finance Act, 1994. The order was challenged before the Commissioner (Appeals) but it was upheld. Thus, the appellant approached the tribunal for relief.

Before appellate tribunal, the appellant argued that it was not engaged in providing photography services but instead, it was carrying out the activity of printing and developing photographs in its colour lab using duty-paid photographic paper and chemicals.

The assessee submitted that customers merely supplied soft copies or digital images, which were then processed and converted into physical photographs or photo books.

According to the assessee, this process amounted to manufacture and it falls outside the scope of service tax.

The Tribunal accepting the side of the appellant, observed that the assessee was not acting as a photographer or photo studio taking photographs for customers, but was engaged in converting soft digital images into printed photographs and bound photo books through a series of technical and physical processes.

The appellate bench of Ashok Jindal (Judicial member) and K. Anpazhakan (Technical member) depending on its earlier decision in Venus Album Company Pvt. Ltd., where it had been held that printing photographs from digital soft copies onto paper results in emergence of a commercially distinct product classifiable under Chapter 4911 of the Central Excise Tariff.

It was also noted that the earlier decision had subsequently been confirmed by the Supreme Court.

Accordingly, the Tribunal decided that the activity undertaken appellant amounted to manufacture and not provision of taxable photography service. Since no service tax was payable, the entire demand, along with penalties, was set aside and the appeal was allowed.

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