2018 (10) TMI 397 - AT - Service Tax

Business Auxiliary Services - activity of working as distributor/marketing agent of M/s Amway India Enterprises Pvt. Ltd. - commission received in lieu of providing the said services - non-payment of service tax - It appear to Revenue that the appellant is liable to pay service tax on the commission received to the tune of ₹ 67,52,975/- for the extended period 2003-2004 to 2007-2008. Held that - The issue is no longer res-integra and this Tribunal have in its judgment in the case of Charanjeet Singh Khanuja vs. CST, Indore/Lucknow/Jaipur/Ludhiana 2015 (6) TMI 585 - CESTAT NEW DELHI , where it was held that service tax would be chargeable on the commission received by a Distributor from Amway on the products purchased by his sales group - regarding extended period it was held in the case that When there is scope for doubt in the mind of an assessee on a particular issue, the longer limitation period, under proviso to Section 11 A(1) cannot be invoked. Matter remanded back to the Adjudicating Authority to decide the show cause notice denovo after hearing the appellant, pursuing any reply filed or to be filed alongwith evidences, if any, and pass the reasoned order in accordance with law - appeal allowed by way of remand.

Summary

Issues:
1. Whether the appellant is chargeable to service tax as a distributor/marketing agent of a company and receiving commission without paying service tax on it.
2. Whether the commission received by the distributor is taxable under Business Auxiliary Services.
3. Whether duty exemption under notification No. 5/2006-ST is applicable to the distributors.
4. Whether the limitation period for demanding service tax is applicable in this case.

Analysis:
1. The issue in this appeal revolved around the liability of the appellant to pay service tax as a distributor/marketing agent of a company without paying tax on the commission received. The appellant was involved in the distribution of products manufactured/imported by the company and received commission based on sales. The Revenue contended that the appellant should pay service tax on the commission received, leading to the initiation of an enquiry under the Central Excise Act, 1944, applicable to Service Tax matters. The appellant contested the show cause notice demanding service tax and penalty, which was confirmed by the adjudicating authority and the Commissioner (Appeals).

2. The Tribunal referred to a previous judgment in the case of Charanjeet Singh Khanuja, wherein it was held that the distributor's activity of selling products purchased from the company does not constitute service to the company. However, the activity of identifying new distributors and receiving commission based on their performance was considered a taxable Business Auxiliary Service. The Tribunal emphasized the need to distinguish between the commission earned by the distributor personally and the commission earned based on the performance of the distributor's sales group. The matter was remanded to the Original Adjudicating Authority for quantifying the service tax demand accurately.

3. Another point of dispute was the applicability of duty exemption under notification No. 5/2006-ST to the distributors. The Department argued that the exemption does not apply when the service is provided under a brand name/trade name of another person. However, the Tribunal disagreed, stating that promoting sales of branded products does not amount to providing a branded service, making distributors eligible for the exemption. The matter was also remanded for further examination by the Adjudicating Authority.

4. Regarding the limitation period for demanding service tax, the Tribunal held that the longer limitation period of 5 years would not be applicable in this case as there was doubt regarding the taxability of the appellant's activities. The Tribunal cited a previous judgment to support the view that when there is doubt in the mind of an assessee on a particular issue, the longer limitation period cannot be invoked. Therefore, the duty could be demanded only for the normal limitation period of one year from the relevant date. The impugned orders were set aside, and the matters were remanded for de novo adjudication by the Original Adjudicating Authority.