2018 (8) TMI 1229 - AT - Service Tax

Liability of service tax - gross amount of 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 - The very same issue has been considered in receipt of number of distributors by Delhi Bench 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. Following the judgement, the impugned order is also set aside and 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 the distributors of Amway India Enterprise Pvt. Ltd.
2. Classification of activities under "Business Auxiliary Service" as per 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 extended limitation period for demanding service tax.

Detailed Analysis:

1. Liability of Service Tax on Commission:
The core issue in this case is whether the appellant, as distributors of Amway India Enterprise Pvt. Ltd., is liable to pay service tax on the gross amount of commission received. The Tribunal referred to the Delhi Bench's judgment in Charanjeet Singh Khanuja Vs. CST, which distinguished between commissions that attract service tax and those that do not. Specifically, the Tribunal noted that commissions linked to the distributor's own purchases from Amway are not taxable, while commissions linked to the purchases made by the distributor's sales group (second level distributors) are taxable as Business Auxiliary Service.

2. Classification under "Business Auxiliary Service":
The Tribunal examined whether the activities of the distributors fall under the definition of "Business Auxiliary Service" under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. It was concluded that the sale of goods purchased by distributors from Amway does not constitute a service to Amway, as the goods, once purchased, belong to the distributor. However, the activity of identifying and sponsoring new distributors for Amway, and earning commissions based on their sales, does fall under the category of Business Auxiliary Service and is therefore taxable.

3. Eligibility for Duty Exemption:
The Tribunal addressed the applicability of Notification No. 5/2006-ST, which exempts certain services from service tax. The Department argued that this exemption does not apply to services provided under a brand name. However, the Tribunal clarified that promoting sales or marketing branded products does not equate to providing a branded service. Therefore, the distributors' eligibility for exemption under Notification No. 5/2006-ST 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 under proviso to Section 73(1) of the Finance Act, 1994, was applicable. The Department argued that the distributors' failure to register for service tax and file returns constituted suppression of facts. However, the Tribunal held that mere non-registration and non-filing of returns do not imply willful intent to evade tax, especially when there were differing views within the Department itself. Therefore, the extended limitation period could not be invoked, and tax could only be demanded for the normal limitation period of one year.

Conclusion:
In light of the above observations, the Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for de novo adjudication in line with the principles laid down in the Charanjeet Singh Khanuja case. The appeal was allowed by way of remand to the adjudicating authority.

(Pronounced in the open court on 17.08.2018)