2015 (9) TMI 788 - AT - Service Tax

Imposition of penalty - Business Auxiliary Services - Whether the appellants are covered under the category of Business Auxiliary Services by virtue of being distributors and appointing further distributors for the sale of goods of M/s. RMP and getting paid a commission for the sale effected to chain of distributors below them - Held that - There cannot be any dispute that the appellants are in receipt of commission/facilitation for the sales which were derived on the basis of purchase made by the distributors appointed by the appellant and further down line. Though it is a fact that there is a cap for payment to the appellant as a distributor, it cannot be denied that the arrangement is nothing but multilevel marketing scheme. At this juncture we have to hold that the issue involved in this case is now squarely covered by the Judgement of this Tribunal in the case of Shri Surendra Singh Rathore and Smt. Chandra Bohra (2013 (8) TMI 149 - CESTAT NEW DELHI). - Tribunal in the case of Shri Surendra Singh Rathore and Smt Chanda Bohra upheld the penalties imposed on the appellant therein on an identical case. We do not find any reason to deviate from such a view taken by the Tribunal. - Decided against assessee.

Summary

Issues: Determination of whether the appellants are covered under Business Auxiliary Services for being distributors and appointing further distributors for the sale of goods, and the liability to pay service tax on the commission received.

Analysis:

Issue 1: Appellants' Status as Business Auxiliary Services:
The case involved individual appellants who were distributors for a binary network company, enrolling Direct Independent Distributors to promote the company's packages. The Revenue contended that the appellants, acting as commission agents of the company, were liable to pay service tax on the commission received. The appellants argued that they were distributors, not commission agents, and that the definition of Business Auxiliary Service did not cover their arrangement with the company. They highlighted that the services rendered prior to 2011 were not taxable under the Budget Changes of 2010-11, which brought multilevel marketing systems under the service tax net. The appellants distinguished previous Tribunal judgments involving different companies and products, emphasizing that their business transactions with the company involved the purchase of goods for resale, not covered under business auxiliary services.

Issue 2: Interpretation of Tribunal's Previous Judgments:
The Tribunal analyzed the agreement between the appellants and the company, which required the appellants to appoint distributors who, in turn, had to purchase goods worth a specified amount from the company. The Tribunal found that the appellants were receiving commission based on purchases made by the distributors appointed by them and further down the chain, indicating a multilevel marketing scheme. Citing a previous Tribunal judgment involving a similar multilevel marketing scheme, the Tribunal held that the commission received by the appellants constituted consideration for marketing and promotion efforts, making them providers of Business Auxiliary Service as defined under the law. The Tribunal upheld the penalties imposed on the appellants based on the authoritative judicial pronouncements and found no reason to deviate from the previous view taken by the Tribunal.

Conclusion:
Ultimately, the Tribunal rejected all the appeals, upholding the decision that the appellants were covered under Business Auxiliary Services due to their distributorship and commission structure. The judgment emphasized the applicability of previous Tribunal decisions in similar cases, establishing the liability of the appellants to pay service tax on the commission received. The penalties imposed on the appellants were upheld, concluding that the impugned order was legally sound and free from any infirmity.

This detailed analysis of the judgment highlights the key issues, arguments presented by both sides, and the Tribunal's decision based on legal interpretations and precedents.