Service Of Preparation Of Scalp, Fitment And Maintenance Of Wig- Indivisible Contact: Madras High Court
The Madras High Court has held that the primary activity is the manufacture of the wig, for which the central excise duty is remitted. The fitment of the wig, including the preparation of the scalp and optional maintenance of the wig itself, is incidental to the manufacturing and supply of the wig.The single bench of Justice Anitha Sumanth has relied on the decision of the Supreme Court...
The Madras High Court has held that the primary activity is the manufacture of the wig, for which the central excise duty is remitted. The fitment of the wig, including the preparation of the scalp and optional maintenance of the wig itself, is incidental to the manufacturing and supply of the wig.
The single bench of Justice Anitha Sumanth has relied on the decision of the Supreme Court in the case of Imagic Creative Pvt. Ltd. Vs. Commissioner of Commercial Taxes. The Supreme Court has specifically noted the difference between a composite contract and an indivisible one. 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 petitioner/assessee is a hair studio and is in the business of non-surgical hair replacement/cranial prosthesis for people who have suffered hair loss. The manufacture of wigs falls under Chapter 67 of the Central Excise Tariff Act, 1985, and the petitioner remits Central Excise Duty in terms of Section 3(1) of the Central Excise Act, 1944.
The petitioner offers the entirety of the turnover of manufacture and fitment of the wig to VAT. The petitioner adopted the stand that it constitutes the sale of a commodity, and the service rendered, of preparation and fitment, is only incidental to the sale. 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 prepared to the specific dimensions of the client. An option is also available to colour the wig if desired. The head is prepared by shaving and cleaning, and oil is applied to the scalp to rid it of dryness. A mud pack may be applied to rid it of excess sweat glands. The head is then washed, conditioned, and sterilised with dettol. The wig is thereafter pasted onto the head with medical tape and glue, and the hair on the wig is cut so as to match the existing hair style. The wig is also maintained, if the client so desires, and re-groomed either fully, i.e. by removal of the wig, sterilisation, cleaning of the scalp, and replacement of the wig, or partly, i.e. by washing and tightening the loose ends.
The question was whether the transaction's intrinsic or dominant nature was that of a wig sale or a rendition of service.
The petitioner contended that the wig is an essential component of the transaction, as there would be no transaction without the wig.
The department contended that the activity would fall squarely within the definition of service under Section 65B(44) of the Finance Act, 1994, effective from 01.07.2012. The definition of service is an inclusive one, meaning any activity carried out by a person for another for consideration, with certain exceptions. The department proceeded on the basis that none of the exceptions Transfer of title in goods or immovable property; deemed sale; monetary transaction; and actionable claim are all exceptions.The department proceeds to sell the entirety of the turnover as per the balance sheet of the petitioner, reducing the sale value of the laser combs that have been offered to tax at 14.5% VAT as a service.
The court held that the integral component of the transaction is the wig itself, as without the wig, there would be no transaction per se. The fitting of the wig and the preparation of the scalp to receive the wig are incidental to the product itself.
"A client could well purchase a wig without opting for the service of fitment or maintenance. The services of preparation of the scalp, fitment, and maintenance of the wig are merely to facilitate and aid in the utilisation of the product and would have no relevance in the absence of the wig," the court said.
Case Title: White Cliffs Hair Studio Private Ltd. Versus Additional Commissioner
Case No: WP.No.12198 of 2019 and WMP.Nos.12470 & 27704 of 2019
Citation: 2022 LiveLaw (Mad) 338
Dated: 08.07.2022
Counsel ForPetitioner: Advocate Joseph Prabakar
Counsel For Respondent: Advocate D.Naveen Duraibabu