2022 (9) TMI 6 - AT - Service Tax

Levy of penalty - Business Auxiliary Service - amount has been received by the Appellant as commission from Amway and Britt. - service tax along with interest paid before issuance of Show Cause Notice - HELD THAT - The proceedings should have been concluded before issuance of the Show Cause Notice. The penalties are set aside - the Service Tax as confirmed in the Adjudication order not interfered with - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
- Appeal against order imposing penalties under Section 77 and Section 78 by the Ld. Commissioner of CGST & Central Excise, Haldia Commissionerate.
- Applicability of extended period of limitation for demanding Service Tax.
- Tax liability on commission received from network marketing companies like Amway and Britt.
- Interpretation of Service Tax liability on commission earned by distributors.
- Validity of penalties imposed by the First Appellate Authority.

Analysis:

1. Penalties Imposed by the Ld. Commissioner:
The Appellant challenged the order of the Ld. Commissioner of CGST & Central Excise, Haldia Commissionerate, which imposed penalties of Rs.1,000 under Section 77 and Rs.1,98,625 (equal to the Service Tax demand confirmed) under Section 78. The Appellant contended that penalties were unjustly imposed, leading to the appeal before the Tribunal.

2. Extended Period of Limitation for Service Tax Demand:
The Appellant was issued a Show Cause Notice demanding Service Tax of Rs.5,15,277 for the period 2006-07 to 2010-11 under 'Business Auxiliary Service.' The issue of whether the extended period of limitation was applicable in this case was raised, considering the differing views during the relevant period regarding the taxability of commission received from companies like Amway and Britt.

3. Tax Liability on Commission from Network Marketing Companies:
The Appellant dealt with Amway and Britt, receiving commission from them. The Tribunal considered the case law precedent of CHARANJEET SINGH KHANUJA Vs. C.S.T., which clarified the tax liability on such commissions. It was argued that the commission earned by the Appellant was related to the volume purchase by distributors, and Service Tax had already been paid on the same, warranting the conclusion of proceedings before the Show Cause Notice was issued.

4. Interpretation of Service Tax Liability on Distributor Commissions:
The Appellant's Advocate contended that the commission earned was in two parts, with one part being non-taxable as per the precedent case. The Tribunal agreed with this interpretation, holding that no Service Tax was leviable on the component related to goods received by distributors. The tax liability was clarified to be on the commission earned based on the volume of purchase of products by the distributor's sales group.

5. Validity of Penalties Imposed by First Appellate Authority:
The First Appellate Authority had allowed the Department's appeal, leading to the imposition of penalties, which the Appellant contested. The Tribunal, after considering the arguments, set aside the penalties imposed by the Ld. Commissioner but did not interfere with the confirmed Service Tax liability. The impugned order was thus set aside, and the Appeal by the Appellant was allowed with consequential relief.

In conclusion, the Tribunal's judgment favored the Appellant by setting aside the penalties while upholding the Service Tax liability as confirmed in the Adjudication order. The decision was based on the interpretation of tax liability on commissions earned from network marketing companies and the applicability of the extended period of limitation in such cases.