2018 (8) TMI 1114 - AT - Service Tax

Valuation - commission received by the distributors - whether the appellant being distributors of Amway India Enterprise Pvt. Ltd. is liable to pay the service tax on the gross amount of commission received by the distributors? Held that - Issue covered by the decision in the case of Charanjeet Singh Khanuja Vs. CST, Indore/ Lucknow/ Jaipur/ Ludhiyana 2015 (6) TMI 585 - CESTAT NEW DELHI , wherein the principle was laid down that which commission will attract the service tax and which will not, since the demand made on the consolidated amount, for the purpose of verification and re-quantification, the matter was remanded to the adjudicating authority. Matter remanded to the adjudicating authority to pass a fresh order on the line of observation made in the case of Charanjeet Singh Khanuja - appeal allowed by way of remand.

Summary

Issues Involved:
1. Liability of service tax on the gross amount of commission received by distributors of Amway India Enterprise Pvt. Ltd.
2. Definition and scope of "Business Auxiliary Service" under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994.
3. Eligibility for duty exemption under Notification No. 5/2006-ST.
4. Applicability of the extended limitation period for demanding service tax.

Issue-Wise Detailed Analysis:

1. Liability of Service Tax on Commission:
The primary issue was whether distributors of Amway India Enterprise Pvt. Ltd. are liable to pay service tax on the gross amount of commission received. The Tribunal referred to the precedent set in the case of Charanjeet Singh Khanuja vs. CST, where it was determined which commission amounts are subject to service tax. The Tribunal noted that Amway distributors earn commission through three streams: profit margin from retail sales, monthly commission based on purchases, and commission from the sales group’s performance. The Tribunal concluded that the commission earned from the distributor's own purchases is not subject to service tax, while commission linked to the sales group’s performance is taxable.

2. Definition and Scope of "Business Auxiliary Service":
The Tribunal analyzed whether the activities of the distributors fall under the definition of "Business Auxiliary Service" as per Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. It was determined that the distributors' activities of purchasing and reselling Amway products do not constitute a service to Amway, as the goods belong to the distributors after purchase. However, the activity of identifying and sponsoring new distributors for Amway, which contributes to the sales group, is considered a service to Amway and is taxable under "Business Auxiliary Service."

3. Eligibility for Duty Exemption:
The Tribunal addressed whether distributors are eligible for duty exemption under Notification No. 5/2006-ST. The Department argued that the exemption does not apply to services provided under a brand name. The Tribunal clarified that promoting sales of branded products does not equate to providing a branded service. Therefore, the distributors' activities do not fall under the exclusion category of the notification, and their eligibility for exemption needs to be examined by the adjudicating authority.

4. Applicability of Extended Limitation Period:
The Tribunal considered whether the extended limitation period for demanding service tax is applicable. The Department claimed that the distributors suppressed facts by not registering for service tax or filing returns. The Tribunal, however, noted that mere non-registration or non-filing of returns does not imply willful suppression with intent to evade tax. Given that there were differing views within the Department on the taxability of the distributors' activities, the Tribunal ruled that the extended limitation period cannot be invoked, and tax can only be demanded for the normal limitation period of one year.

Conclusion:
The Tribunal set aside the impugned orders and remanded the matter to the original adjudicating authority for de novo adjudication in line with the observations and directions provided. The appeals by the distributors and the Department were disposed of accordingly.