2017 (2) TMI 718 - AT - Service Tax

Business Auxiliary Services - multi level marketing services - Held that - service tax will be chargeable on the commission received by the distributor on the products purchased by his sales group. However, the service tax is not leviable on the commission earned by the distributor on the basis of the volume of the purchases made by the group of second level of distributors appointed by M/s. Forever Living Imports (India) Pvt. Ltd. on being sponsored by the distributor Extended period of limitation cannot be invoked in the present case - matter remanded to to the lower authorities for re-quantification of the demand falling within the limitation period after examining the applicability of the small scale industry - there was bonafide belief in the industry itself, imposition of penalty u/s 78 would not be justified - appeal partly allowed - part matter on remand.

Summary

Issues:
1. Liability of service tax on commission received from a company under Business Auxiliary Services.
2. Applicability of service tax under the category of 'Business Auxiliary Services' for multi level marketing activities.
3. Time limitation for issuing show cause notice and confirming demand.
4. Applicability of penalty under section 78 of the Act.

Analysis:

Issue 1: Liability of service tax on commission received from a company under Business Auxiliary Services
The appellant, engaged in multi level marketing, received commission from a company but did not pay service tax on it. The Revenue contended that the commission earned falls under 'Business Auxiliary Services' and is liable to service tax. The Tribunal upheld the demand, stating that by providing multi level marketing services, the appellant falls under the category of taxable services.

Issue 2: Applicability of service tax under the category of 'Business Auxiliary Services' for multi level marketing activities
The appellant argued that the commission received was not for promotion or marketing activities but as a dividend for introducing new distributors. However, the Tribunal found that the services provided by the appellant to the company fell under 'Business Auxiliary Services,' making them liable for service tax.

Issue 3: Time limitation for issuing show cause notice and confirming demand
The period involved in the case was from April 2004 to March 2009, with the show cause notice issued on 22.10.2009. The appellant requested to set aside the demand outside the normal period of limitation. The Tribunal referred to previous decisions and restricted the demand to the normal time limit, as there was doubt regarding the taxability of the activity.

Issue 4: Applicability of penalty under section 78 of the Act
The Tribunal remanded the matter to re-quantify the demand falling within the limitation period and set aside the penalty imposed under section 78. It was noted that penalty under section 78 is justified only in cases of fraud to avoid payment of duty, which was not applicable in this scenario due to the bonafide belief in the industry.

In conclusion, the Tribunal confirmed the demand against the appellant within the limitation period, setting aside the penalty imposed. The appeal was allowed accordingly, disposing of the case.