2020 (5) TMI 523 - AT - Service Tax

Recovery of service tax along with interest and penalty - service tax on commission received on the distributors in multi level marketing system - HELD THAT - The liability of service tax in multi level marketing system has been considered by this Tribunal in SHRI SURENDRA SINGH RATHORE AND SMT. CHANDA BOHRA VERSUS CCE, JAIPUR 2013 (8) TMI 149 - CESTAT NEW DELHI where it was held that commission/consideration is provided according to the terms and conditions, for marketing/promotion efforts by the appellants. The receipt of commission by the appellants clearly makes them providers of Business Auxiliary Service as defined under Section 65(19) of the Act. Appeal dismissed - decided against appellant.

Summary

Issues:
- Liability of service tax on distributors in multi level marketing system
- Interpretation of the agreement between the parties
- Consideration received by the appellants as commission
- Classification of the received commission as a service
- Application of Business Auxiliary Service under Section 65(19) of the Act

Analysis:
The case involved an appeal against an order passed by the Commissioner (Appeals) regarding the liability of service tax on distributors in a multi level marketing system. The appellant, engaged in distributing products for a company, was not discharging the service tax liability on the consideration received. The Tribunal noted that similar issues had been settled in previous cases. The Tribunal analyzed the agreement between the parties, which involved the distributor receiving a commission for marketing and promoting the company's products. The Tribunal referred to previous judgments and observed that the commission received constituted consideration paid by the service receiver to the service provider. The Tribunal rejected the appellant's argument that the commission was a dividend, stating that it was a result of marketing and promotion efforts, thus falling under Business Auxiliary Service as defined in the Act.

The Tribunal upheld the impugned order, citing precedents and confirming the tax liability against the appellants. It concluded that the commission received by the appellants was for marketing and promotion efforts, making them providers of Business Auxiliary Service under Section 65(19) of the Act. The Tribunal found the appellate and adjudication orders to be sound in their analysis, leading to the dismissal of the appeal due to its lack of merit. The decision was pronounced in the open court, upholding the impugned order based on the established precedents and the nature of the commission received by the appellants in the multi level marketing system.