2013 (8) TMI 149 - AT - Service Tax

Business Auxiliary service - Revenue proceeded against the assessee for having provided Business Auxiliary Service ; for failure to obtain registration and filing returns disclosing amounts received from the taxable service - Commission received from M/s Fashion Suitings Pvt. Ltd., Bhilwara Rajasthan (for short FSL), for providing the Business Auxiliary Service of promotion and marketing of FSL products Held that - On analysis of the terms and conditions of similar agreements between the FSL and the petitioners, the adjudicating authority confirmed the tax liability against the appellants. We are satisfied that RCM (Right Concept Marketing) Business Marketing Plan is neither a new arrangement nor there is any concept of dividends as suggested by the Ld. Counsel. This is a clear Multilevel Marketing Service Scheme. The consideration/commission received by the appellants from FSL (this fact is not disputed) is the result of the marketing/promotion of FSL products by the appellants and constitutes a service (Business Auxiliary Service), provided in respect of FSL products to FSL. The commission/consideration is provided according to the terms and conditions, for marketing/promotion efforts by the appellants. The receipt of commission by the appellants clearly makes them providers of Business Auxiliary Service as defined under Section 65 (19) of the Act Penalty under Section 76 of the service tax act Held that - Imposition of penalties on the appellants is not sustainable as the appellants were under the bona-fide belief that the service provided by them was not Business Auxiliary Service . We are unable to accept this contention as we discern no ambiguity in the statutory definition of Business Auxiliary service that could have sustained on given rise to any bona-fide belief as to the activities of the appellants being not Business Auxiliary Service Decided against the Assessee.

Summary

Issues:
1. Whether the appellants provided 'Business Auxiliary Service' as per Section 65(19)(i) of the Finance Act, 1994?
2. Whether the commission received by the appellants under the 'RCM Business Marketing Scheme' constitutes consideration paid by the service receiver to the service provider?
3. Whether the penalties imposed on the appellants are sustainable?

Analysis:

Issue 1:
The Revenue alleged that the appellants provided 'Business Auxiliary Service' without obtaining registration or filing returns, leading to a Show Cause Notice for evasion of service tax. The adjudicating authority confirmed the demand, interest, and penalties under relevant provisions of the Act. The Commissioner Central Excise upheld the decision, stating the appellants failed to register, file returns, or remit service tax. The agreement with Fashion Suitings Pvt. Ltd. involved promoting and marketing products under the RCM Business Marketing Plan, where distributors earned commissions. The appellate authority found the appellants guilty, leading to the current appeal.

Issue 2:
The key question was whether the commission received by the appellants through the 'RCM Business Marketing Scheme' constituted consideration for services provided. The appellants argued it was a Multilevel Marketing Scheme, with distributors introducing new members to earn commissions. However, the adjudicating authority determined that the scheme was a Multilevel Marketing Service, not a dividend arrangement. The commission received was deemed payment for marketing and promotion efforts, making the appellants providers of 'Business Auxiliary Service' under the Act.

Issue 3:
Regarding the penalties imposed on the appellants, they contended that they believed in good faith that their activities did not constitute 'Business Auxiliary Service.' However, the tribunal found no ambiguity in the statutory definition to support such a belief. Consequently, the penalties were upheld along with the tax liability and interest. The tribunal rejected the appeals, affirming the orders in respect of tax, interest, and penalties, without awarding any costs.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, and the tribunal's decision on each aspect, ensuring a comprehensive understanding of the case.