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2016 (2) TMI 335 - CESTAT CHENNAI

2016 (2) TMI 335 - CESTAT CHENNAI - TMI - Demand of service tax on promotion/marketing/sale of the goods of M/s. Amway India Enterprises - appellants were not discharging service tax liability on the commissions received under multilevel marketing scheme (Direct Marketing) - extended period of limitation - Held that:- service tax demand in respect of commission received by the appellants on direct retail sale is liable to be sustained and the service tax on the commission received for sale of go .....

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SAMI and Shri P.K. CHOUDHARY, JJ. For The Appellant : Shri C. Seethapathy, Adv. For The Respondent : Shri Veerabhadra Reddy, JC (AR) Per: R. Periasami All the three appeals are taken up together for disposal since the issues involved in these appeals are identical in nature. 2. The brief facts of the case are that the appellants undertook promotion/marketing/sale of goods belonging to M/s. Amway India Enterprises, New Delhi. The period involved in all the three appeals is 01.10.2003 to 30.04.200 .....

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at the appellants were not discharging service tax liability on the commissions received from M/s. Amway India Enterprises for undertaking promotion/marketing/sale of the goods. Accordingly, SCNs were issued to the appellants and the adjudicating authority in his OIO confirmed the service tax demand and education cess and secondary education cess under Section 73(2) of the Finance Act, 1994 and also appropriated the amounts already paid and also imposed penalty under Section 76, 77 and 78 of the .....

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ell them in retail to their customers based on the MRP fixed by the Amway. He submits that they are not perse commission agent for sale of goods belonging to Amway but the commission received by them is on account of the quantity sold by them on purchase of goods from Amway and its retail sale under direct marketing concept. In addition to that, they also sell it to other downline distributers for sale of products by them. The goods are directly sold to them on retail sale on which they VAT has .....

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the profit earned by the distributers from the sales of goods in retail sales which has been purchased from Amway and on the commission earned by them several month on purchase of goods from Amway. He also submits that the Tribunal in the above case remanded the case to the original authority for quantifying the service tax demand on the profit earned by the distributors from sale of goods in retail which had been purchased by them from Amway and on the commission earned by them every month on .....

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h sides and the short issue involved in this case relates to the demand of service tax under BAS on the commission amount received by the appellants from Amway India Enterprises under multilevel marketing scheme (Direct Marketing). The adjudicating authority has demanded service tax on the gross amount of commission received from Amway India Enterprises. We find that these goods are not sold on the shelf but was sold only through chain of distributors by way of direct marketing. The price on whi .....

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ppellants 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, 863, 864, 865, 866, 867, 868, 869, 870 and 878/2012 filed by the Revenue are distributors of Amway India Enterprises Pvt. Ltd. Amway operate their business of selling of their products under a Business Plan called Multi Level Marketing. As per t .....

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of income (a) a distributor of Amway products purchases the products from Amway at the Distributions Acquisition 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 and the DAP is the Distributors profit margin. (b) Besides above, the Distributor also gets a commission from Amway from 6% to 21% depending upon the purchases of Amway products during the month for sale or for personal consumption. Thus, dependi .....

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utors (assessees) of Amway during the period of dispute, as mentioned in the Chart in para 2 above. The departments contention is that these commission received by the assessees from Amway are in respect of the Business Auxiliary Service provided by them to Amway. On the other hand, the contention of the assessees is that their activity is not covered by the definition of Business Auxiliary Service as given under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. 11. In term .....

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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 client includes any service provided in relation to promotion or marketing of games of chance, organized, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;] (iii) Any customer care service provided on behalf of the client; or (iv) Procure .....

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r 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, who purchase the goods from Amway at the Distributors Acquisition Price (DAP)) and sell the same in retail at price not exceeding MRP fixed by the Amway. This activity of the Distributors, in our view, cannot be treated as promotion, marketing or .....

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ibutor from Amway for buying certain quantum of goods from Amway during a month cannot 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 commission is not linked to the goods sold by the Distributor, but is linked to the goods purchased by the Distributor from Amway during a month and is in the nature of volume discount. Therefore, no service tax is chargeable on the profit earned by th .....

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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 treated as consideration for Business Auxiliary Service of sales promotion provided to Amway. Therefore, service tax would be chargeable on the commission received by a Distributor from Amway on the products purchased by his sales group. However, i .....

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eived 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 raised by 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 the respondents in appeals .....

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prietary 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 concern" in Section 65(105) (zzb) was replaced by any person, we are of the view that even during the period prior to 1.5.2006, the Business Auxiliary Service, even if provided by an individual to a client, was taxable. Moreover, in this group o .....

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d 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 marketing or promoting any taxable service which is branded and the brand name belongs to another person. Marketing or sale promotion of branded products by a person/ commission agent does not amount to providing branded service by him and h .....

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t 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 the assesses neither obtained service tax registration nor did they declare their activities to the jurisdictional service tax authorities nor did they file ST-3 Return and, therefore, they are guilty of suppression of relevant facts .....

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tice of the fact that in respect of appeals filed by the Revenue, the Commissioner (Appeals) after analyzing the activities of the assesses had taken the view that the same is not covered by the definition of Business Auxiliary Service under Section 65(105) (zzb) read with Section 65(19) of the Finance Act, 1994. When on the issue involved in this group of cases, there were two views in the Department itself, it cannot be said that on the question as to whether the activity of the assessees was .....

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of these cases. Therefore, the longer limitation period of 5 years under proviso to Section 73(1) of the Finance Act, 1994 would not be invokable and duty can be demanded only for normal limitation period of one year from the relevant date. 17. In view of the above discussion, the impugned orders passed by the Commissioner (Appeals) are set aside and the matters are remanded to the Original Adjudicating Authority for de novo adjudication strictly in terms of our observations and directions in th .....

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rs, the Tribunal in the above order categorically held that though the service tax is not liable to be paid on the profit earned by the distributors from sale of goods in retail. Whereas the commission earned by the appellant 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 is liable for service tax. In the present case also the adjudicating authority has confirmed .....

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