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Mr. Charanjeet Singh Khanuja And Others Versus CST, Indore/Lucknow/Jaipur/Ludhiana And Others

2015 (6) TMI 585 - CESTAT NEW DELHI

Demand of service tax - Tax on commission received - Commission as distributor of Amway - Held that:- activity of a Distributor of identifying other persons, who can be roped in for sale of the Amway products/marketing of the Amway products and who on being sponsored by that Distributor are appointed by Amway as second level of distributors is, in our view, the activity of marketing or sale of the goods belonging to Amway and the commission received by the Distributor from Amway, which is linked .....

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has been made between the commission earned by a Distributor from Amway based on his own volume of purchase from Amway and the commission earned by him on the basis of the volume of purchases of Amway products made by his sales group i.e. group of second level of Distributors appointed by Amway on being sponsored by the Distributor. - Matter remanded back.

Whether duty exemption under notification no.5/2006-ST would be admissible to the Distributors in this group of cases - distribut .....

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cases, the eligibility of the Distributors (assessees) for the exemption notification no.6/2005-ST has not been examined and for this purpose also, these matters have to be remanded to the Original Adjudicating Authority.

When there is scope for doubt in the mind of an assessee on a particular issue, the longer limitation period, under proviso to Section 11 A(1) cannot be invoked and in our view, the ratio of this judgement of the Apex Court is applicable to the facts of these cases. .....

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Appeals Nos. 138, 139/2009, 406/2010, 522 to 525/2010,257, 259, 433, 473, 502, 580, 1123, 1383, 1781, 1802/2011, 56, 86, 126, 645/2012 , 1723, 1724, 2337, 2810/2012, 851, 852, 853, 854, 863, 864, 865, 866, 867, 868, 869, 870, 878/2012 - Order No.51818-51855/2015 - Dated:- 9-6-2015 - Honble Shri Justice G. Raghuram, President And Honble Shri Rakesh Kumar, Member (Technical),JJ. For the Petitioner : Shri Kapil Kher, Sr. Advocate, Shri J.K. Mittal, Shri Vineet Singh and Shri Abhisek Jaju, Shri sid .....

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firms owned by individuals who are the distributors of Amway India Enterprises Pvt. Ltd. , New Delhi (hereinafter referred to as Amway). Amway is a company engaged in marketing and sale of consumer products and it markets its products through direct selling and for this purpose Amway appoint persons as distributors who buy the products to be marketed from Amway at Distributors Acquisition Price (DAP) and are required to sell the same at the price not exceeding the MRP fixed by the Amway for thes .....

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ases made by a Distributor from Amway in a month. The distributors appointed by Amway can also sponsor/enroll other persons for marketing of the Amway products. These second level Distributors enrolled through a particular Distributor can directly purchase the products from Amway for selling the same. Based on the volume of the Amway products purchased by such second level distributors, the Distributors through whom they are enrolled, are paid commission and other incentives by Amway. This commi .....

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commission received from Amway based on the volume of the sale made by the second level Distributors appointed by Distributors i.e. the Distributors sales group. 2. According to the Department, the activity of the appellants in Appeals nos. ST/138 and 139/2009, ST/406/2010, ST/522 to 525/2010, ST/257,259, 433,473,502,580,1123,1383,1781 & 1802/2011, ST/56, 86, 126, 645/2012 and ST/1723-1724, 2337 and 2810/2012 and of the respondents in appeals nos. ST/851 to 854, 863, 864, 865, 866, 867, 868, .....

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e tax from them under proviso to Section 73(1) of the Finance Act, 1994 along with interest thereon under Section 75 ibid and also for imposition of penalty on them under Section 76, 77 and 78 ibid from the assessees. The details of duty demands made from these persons are as under:- Sl.No. Appeals Nos. AssesseesName Period of Dispute Show Cause dt. Amounts of ST demand(Rs.) 1. ST/138/2009 Mr.Charanjeet Singh 1.7.2003 to 31.3.2005 20.12.2005 1,25,922/- 2. ST/139/2009 Sh.Biju John 01.07.2003 to 3 .....

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/2011 Sandhu Mktg. 01.07.2003 to 31.03.2009 11.07.2007 5,55,915/- 10. ST/433/2011 Rashmi Panchnanda 01.07.2003 to 31.03.2008 17.04.2009 9,55,023/- 11. ST/473/2011 Manjeet Kaur & Ors. 01.07.2003 to 31.03.2005 11.09.2008 15,773/- 12. ST/502/2011 Shuddhatm Bharil 01.07.2003 to 31.03.2008 24.10.2008 18,69,606/- 13. ST/580/2011 Atul Sondhi 01.04.2006 to 31.03.2008 09.01.2009 3,06,391/- 14. ST/1123/2011 Paramjeet Kaur Amol 01.07.2003 to 31.03.2006 25.09.2009 1,08,052/- 15. ST/1383/2011 Rajveer Sin .....

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22. ST/1723/2012 Ms.Sangeet 01.04.2003 to 31.03.2009 11.09.2009 39,862/- 23. ST/1724/2012 Deepak Batish 01.04.2003 to 31.03.2008 20.04.2009 1,50,006/- 24. ST/2337/2012 Sanjiv Gandhi 2003-04 to 2006-07 20.04.2009 2.02,346/- 25. ST/2810/2012 Rajan Sachdev 2003-2004 to 2007-08 20.04.2009 2,40,322/- 26. ST/851/2012 CCE Vs.Ajeet Singh 2006-07 to 2009-10 13.09.2010 3,70,283/- 27. ST/852/2012 CCE Vs.Pramila Singh 2006-07 to 2009-10 13.09.2010 2,73,978/- 28. ST/853/2012 CCE Vs.Sneh Lata 2006-07 to 2009 .....

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a 2006-07 to 2009-10 13.09.2010 ₹ 2,35,043/- 35. ST/868/2012 CCE Vs.Vandana Nigam 2006-07 to 2009-10 13.09.2010 ₹ 3,14,256/- 36. ST/869/2012 CCE Vs.Prem Lata Singh 2006-07 to 2009-10 13.09.2010 ₹ 3,63,725/- 37. ST/870/2012 CCE Vs.Sharmila Gupta 2006-07 to 2009-10 13.09.2010 ₹ 86,438/- 38. ST/878/2012 CCE Vs. Tarun Prasad 2006-07 to 2009-10 13.09.2010 ₹ 3,08,810/- 3. The above show cause notices were adjudicated by the Original Adjudicating Authority by separate orde .....

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rketing, M/s. Sandhu Marketing, Ms. Rashmi Pachnanda, Smt. Manjit Kaur, Shri Shuddhatm Prakash Bharill, Shri Atul Sondhi, Smt. Paramjit Kaur Amole, Shri Rajveer Singh, Shri Shekhar Choudhary, Shri Nitesh Dixit, Mt. Paramjit Kaur Amole, Ms. Ritu Rastogi, Ms. Kavita Sukhija and Smt.Sangeet, Shri Deepak Batish, Shri Sanjiv Gandhi and Shri Ranjan Sachdev were dismissed, against which the present appeals have been filed, the appeals filed by Shri Ajit Singh, Pramila Singh, Sneh Lata, Sunita Singh, Sh .....

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nts in appeals nos. ST/138 and 139/2009, ST/406/2010, ST/522 to 525, ST/257,259, 433,473,502,580,1123,1383,1781 & 1802/2011, ST/56, 86, 126, 645/2012 and ST/1723-1724, 2337 and 2810/2012 and the respondents in appeals nos. ST/851 to 854, 863, 864, 865, 866, 867, 868, 869, 870 and 878/2012 made the following submissions:- (1) The persons in these cases from whom service tax is sought to be recovered are distributors of Amway, who during the period of dispute purchased the Amway products and s .....

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oup of a Distributor consisting of second level of Distributors appointed through a Distributor. (3) During the period till 30.04.2006, in terms of Section 65(105) (zzb) service provided to a client by a commercial concern in relation to Business Auxiliary Service was taxable. It is only by the amendment made by Finance Act, 2006 w.e.f. 1.5.2006, that the word commercial concern was substituted by any person. In the present case, the Distributors are the individual persons. The Board vide Circul .....

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ceived by them during the period prior to 1.5.2006. (4) Even if the activity of the Distributors in this group of cases is treated as taxable under Section 65(105)(zzb) read with Section 65(19)(i) of the Finance Act, 1994, each of them would be eligible for small service providers exemption under exemption notification no.6/2005-ST dated 1.3.2005. This plea had been specifically made before the lower authorities but the same was not accepted. (5) In any case, longer limitation period under provi .....

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s of impugned orders of the Commissioner (Appeals) in respect of appeal nos. ST/138 and 139/2009, ST/406/2010, ST/522 to 525, 257,259, 433,473,502,580,1123,1383,1781 & 1802/2011, ST/56, 86, 126, 645/2012 and ST/1723-1724, 2337 and 2810/2012 filed by the Distributors and assailed the impugned orders of the Commissioner (Appeals) reiterating the grounds of appeals in respect of appeals nos. ST/851 to 854, 863, 864, 865, 866, 867, 868, 869, 870 and 878/2012 filed by the Revenue. He emphasized t .....

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rein the Tribunal has held that the Right Concept Marketing (RCM) of M/s. Fashion Suitings Pvt. Ltd., Bhilwara is a multi level marketing scheme and the consideration/commission received by the appellants from M/s.Fashion Suitings Pvt. Ltd. (FASL) is the result of the marketing/promotion of FASL products and hence, constitutes Business Auxiliary service provided in respect of FASL products to FASL and the same would be taxable under Section 65(105)(zzb) read with Section 65(19)(i) of the Finance .....

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penalty under Section 76, 77 and 78 of the Finance Act has been correctly imposed. With regard to the assessees plea that they are not a commercial concern, Shri Dixit pleaded that since they were acting as distributors of Amway products and were engaged in promoting the sales of the products of Amway for which they were receiving the commission, each of them has to be treated as commercial concern. With regard to the Assessees plea for small service providersexemption notification no.5/2006-ST, .....

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/851 to 854, 863, 864, 865, 866, 867, 868, 869, 870 and 878/2012 filed by the Revenue, the impugned orders passed by the Commissioner (Appeals) are not correct. 8. We have considered the submissions from both the sides and perused the records. 9. The appellants in the appeals ST/138 and 139/2009, ST/406/2010, ST/522 to 525, 257, 259, 433,473,502,580,1123,1383,1781 & 1802/2011, ST/56, 86, 126, 645/2012 and ST/1723-1724, 2337 and 2810/2012 and the respondents in the appeals nos. ST/851 to 854, .....

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nd level of distributor who are also appointed as distributors by Amway and besides selling the Amway products purchased Amway, they also promote the marketing of the Amway products. As per the Amway Business Plan, a distributor has three streams of income (a) a distributor of Amway products purchases the products from Amway at the DistributionsAcquisition Price (DAP) and sells them in retail at the price not exceeding the MRP as fixed by the Amway. The difference between the retail sale price a .....

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and productivity as defined by the products sales of the distributors appointed through him which constitute his sales group. 10. In these cases, the service tax has been demanded on the gross amount of commission received by each of the Distributors (assessees) of Amway during the period of dispute, as mentioned in the Chart in para 2 above. The The departments contention is that these commission received by the assessees from Amway are in respect of the Business Auxiliary Service provided by t .....

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65(19): Business auxiliary servicemeans any service in relation to,- (i) Promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) Promotion or marketing of service provided by the client; or [Explanation For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, service in relation to promotion or marketing of service provided by the clientincludes any service provided in relation to promotion or marketing of games of cha .....

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ing to the client.In our view, the activity which is covered under Section 19(i) is in relation to the promotion or marketing or sale of the goods produced by the client or provided by the client or belonging to the client. This expression, in our view, would not cover the sale of the goods by a person, which belong to him, as the activity of the promotion or marketing or sale of the goods by a person belonging to him would not constitute service. The assessees in these cases are distributors, w .....

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Distributor from Amway, those products cease to belong to Amway, but belong to the Distributor and sale of these goods by the Distributor would not constitute service to Amway. For the same reason, any incentive or commission received by a Distributor from Amway for buying certain quantum of goods from Amway during a month can not be treated as the consideration received for promotion or marketing or sale of the goods produced by or provided by or belonging to the client, more so, as this commi .....

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persons, who can be roped in for sale of the Amway products/marketing of the Amway products and who on being sponsored by that Distributor are appointed by Amway as second level of distributors is, in our view, the activity of marketing or sale of the goods belonging to Amway and the commission received by the Distributor from Amway, which is linked to the performance of his sales group (group of the second level of distributors appointed on being sponsored by the Distributor) would have to be t .....

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him on the basis of the volume of purchases of Amway products made by his sales group i.e. group of second level of Distributors appointed by Amway on being sponsored by the Distributor. For quantifying the service tax demand on the commission received from Amway on the volume of purchase made by the distributors sponsored /enrolled by a particular distributor i.e. the Distributors sales group, these matters would have to be remanded to the Original Adjudicating Authority. 14. Another objection .....

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to Business Auxiliary Service and the individual persons cannot be treated as Business concern. We do not accept this plea as a business concern can be a proprietary firm also which is owned by an individual and there is no difference between proprietary firm owned by a person and that person. When an individual engages himself in a commercial activity, he has to be treated as business or commercial concern. Therefore, notwithstanding the fact that w.e.f. 1.5.2006 the term, commercial concernin .....

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ors in this group of cases. In this regard, the Departments plea is that this exemption is not applicable when the taxable service is provided by a person under a brand name/trade name, whether registered or not, of another person and in this group of cases, the Distributors have promoted the sale/marketing of branded products. This plea of the Department is not correct, as in these cases the distributors are engaged in promoting sales/marketing of the products of Amway and they are not marketin .....

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-ST has not been examined and for this purpose also, these matters have to be remanded to the Original Adjudicating Authority. 16. Another plea raised in these appeals is regarding limitation. It is the contention of the assesses that there was absolutely no suppression or misstatement of facts or deliberate contravention of the provisions of the Finance Act, 1994 or of the Rules made thereunder with intent to evade payment of service tax. The Departments contention, on the other hand, is that t .....

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