2016 (2) TMI 335 - AT - Service Tax

Demand of service tax on promotion/marketing/sale of the goods of M/s. Amway India Enterprises - appellants were not discharging service tax liability on the commissions received under multilevel marketing scheme (Direct Marketing) - extended period of limitation - Held that - service tax demand in respect of commission received by the appellants on direct retail sale is liable to be sustained and the service tax on the commission received for sale of goods through second and third level distributors is sustained. Matter remanded back to adjudicating authority to re-quantify the service tax demand on the commission received on the volumes of purchases made by the distributors, sponsors enrolled by the particular distributor. and to grant the benefit of notifications if available. Decided partly in favor of assessee.

Issues Involved:
1. Liability of service tax on commissions received by appellants from Amway India Enterprises.
2. Classification of services under Business Auxiliary Service (BAS).
3. Applicability of exemption under Notification No. 6/2005-ST.
4. Limitation period for demanding service tax.

Detailed Analysis:

1. Liability of Service Tax on Commissions:
The primary issue revolves around whether the appellants are liable to pay service tax on the commissions received from Amway India Enterprises for the period 01.10.2003 to 30.04.2006. The adjudicating authority confirmed the service tax demand along with penalties under Sections 76, 77, and 78 of the Finance Act, 1994. However, the Commissioner (Appeals) upheld the demand and penalty under Section 77 but set aside the penalties under Sections 76 and 78.

2. Classification of Services under BAS:
The appellants argued that they are not commission agents but individuals engaged in direct marketing, purchasing goods from Amway and selling them at MRP. They contended that the commissions received were based on the quantity sold and not for sales promotion services. The Tribunal's Principal Bench in a similar case (Mr. Charanjeet Singh & others) held that no service tax is chargeable on the profit earned from retail sales of goods purchased from Amway and on commissions earned monthly based on purchases. However, the AR argued that the appellants also engaged in sales promotion by appointing second and third-level distributors, which falls under BAS.

3. Applicability of Exemption under Notification No. 6/2005-ST:
The Tribunal noted that the eligibility for exemption under Notification No. 6/2005-ST was not examined by the adjudicating authority. The Tribunal's Principal Bench clarified that marketing or sales promotion of branded products does not amount to providing branded service and does not fall under the exclusion category of the notification.

4. Limitation Period for Demanding Service Tax:
The appellants contended that there was no suppression or misstatement of facts to invoke the extended limitation period. The Tribunal observed that merely not applying for service tax registration or not filing returns does not imply willful intent to evade tax. Given the two views within the Department itself on the issue, the longer limitation period under Section 73(1) of the Finance Act, 1994, was deemed not applicable. Hence, the demand could only be raised for the normal limitation period of one year.

Conclusion:
The Tribunal set aside the impugned orders and remanded the matters to the original adjudicating authority for de novo adjudication. The authority was directed to re-quantify the service tax demand, distinguishing between commissions received on direct retail sales and those received for sales through second and third-level distributors. The applicability of the exemption under Notification No. 6/2005-ST was also to be examined. The appellants were instructed to produce relevant documents, and the adjudicating authority was to provide a reasonable opportunity for the appellants to present their case.

← Previous Next →