2016 (2) TMI 610 - AT - Service Tax

Multi Level Marketing - Business Auxiliary Services - Demand of service tax on commission earned from activity of sponsoring new distributors and commission earned on turnover achieved by them - Held that - service tax is not payable on the Trade discount earned and profit on Trading in Amway goods. But the same is taxable on the commission earned from activity of sponsoring new distributors and commission earned on turnover achieved by them and accordingly remanded with direction to recalculate the tax liability. - Matter remanded back to recalculate the service tax liability - Decided partly in favor of assessee.

Issues:
1. Appeal against service tax demand on discount and commission.
2. Delay in filing appeal and request for condonation.
3. Tax liability on different types of earnings.
4. Distinction between sale of goods and service provision.
5. Taxability of commission earned from sponsoring new distributors.
6. Business Auxiliary Service and tax implications.
7. Eligibility for duty exemption under specific notification.
8. Dispute regarding limitation for tax assessment.

Detailed Analysis:

1. The appellants challenged the service tax demand on both discount and commission earned as business associates of Amway India Enterprises Pvt. Ltd. The appeal was against the order-in-appeal confirming the tax liability on these earnings.

2. The appellants sought condonation for a delay of 35 days in filing the appeal, citing similarity with other cases where service tax was not payable on trade discount but on commission earned from specific activities. The delay was condoned for the interest of justice, subject to a cost of Rs. 2,000 each to be paid to the Prime Minister's Relief Fund.

3. The Tribunal allowed the appeal by remanding the case to recalculate the tax liability based on previous directions. It distinguished between earnings from selling goods purchased from Amway and commission from sponsoring new distributors, stating that service tax was not chargeable on profit from retail sales but on commission linked to sales group performance.

4. The judgment clarified that the activity of distributors selling goods purchased from Amway did not constitute service to Amway, hence not taxable. However, commission earned from sponsoring new distributors and their sales group performance was considered a Business Auxiliary Service, subject to service tax.

5. The issue of tax exemption under a specific notification was raised, with the Department's contention that it did not apply when services were provided under a brand name. The Tribunal disagreed, stating that promoting sales of branded products did not fall under the exclusion category for the exemption.

6. A dispute regarding limitation for tax assessment arose, with the assesses claiming no deliberate evasion of tax. The Tribunal held that failure to register for service tax or file returns did not necessarily imply intent to evade tax. It emphasized the need for clarity in tax regulations and noted differing views within the Department itself on tax applicability in such cases.

7. The judgment concluded by disposing of the condonation and stay applications, along with the appeals, in an open court session.

This detailed analysis provides a comprehensive overview of the legal judgment, covering all issues involved and the Tribunal's findings on each aspect of the case.

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