2018 (9) TMI 659 - AT - Service Tax

Liability of Service tax - 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 appellant is similarly placed distributors of Amway India Enterprise Pvt. Ltd, as the various distributors involved in the judgment of Charanjeet Singh Khanuja 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. The matter is 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.

Issues Involved:
1. Liability of service tax on the gross amount of commission received by distributors of Amway India Enterprise Pvt. Ltd.
2. Definition and scope of "Business Auxiliary Service" under 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 the extended limitation period for demanding service tax.

Issue-wise Detailed Analysis:

1. Liability of Service Tax on Commission:
The primary issue was 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 referenced the case of Charanjeet Singh Khanuja Vs. CST, where it was established that only certain commissions attract service tax. The tribunal found that the appellant's situation was similar to that of the distributors in the Charanjeet Singh Khanuja case, where the commission received from Amway for personal purchases and sales did not constitute a taxable service, but the commission received for the sales group’s performance was considered a taxable service.

2. Definition and Scope of "Business Auxiliary Service":
The tribunal examined whether the activities of the distributors fell under the definition of "Business Auxiliary Service" as per Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. It was concluded that the sale of goods by the distributors, which were purchased from Amway, did not constitute a service to Amway. However, the activity of identifying and sponsoring other distributors was considered as promoting or marketing the goods belonging to Amway, thus falling under "Business Auxiliary Service." Therefore, service tax was applicable on the commission linked to the performance of the sales group.

3. Eligibility for Duty Exemption:
The tribunal addressed whether the distributors were eligible for duty exemption under Notification No. 5/2006-ST. The Department's plea that the exemption was not applicable due to the promotion of branded products was rejected. The tribunal clarified that promoting the sale of branded products does not equate to providing a branded service. Thus, the eligibility for exemption under Notification No. 5/2006-ST needed to be re-examined by the adjudicating authority.

4. Applicability of Extended Limitation Period:
The tribunal considered whether the extended limitation period for demanding service tax was applicable. The Department argued that the distributors were guilty of suppression of facts by not registering for service tax or filing returns. The tribunal, however, found that the non-compliance could not be inferred as a willful act to evade tax, especially since there were differing views within the Department itself regarding the taxability of the activities. Citing the Supreme Court's judgment in Continental Foundation Joint Venture v. CCE, the tribunal concluded that the extended limitation period of five years could not be invoked, and the demand should be limited to the normal period of one year.

Conclusion:
The tribunal set aside the impugned orders and remanded the matter to the Original Adjudicating Authority for de novo adjudication based on the observations and directions provided in the Charanjeet Singh Khanuja case. The appeal was allowed by way of remand to the adjudicating authority for fresh consideration in line with the established principles.

Pronouncement:
The judgment was pronounced in the open court on 17.08.2018.

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