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Judgment
Sl. No.,Appeals Nos.,"Assessees’
Name","P e r i o d of
Dispute","S how 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
31.3.2005",20.12.2005,"2,47,060/-
3.,ST/406/2010,Varinder Dhiman,"July, 2003 to
31.03.2006",21.06.2007,"97,747/-
4.,ST/522/2010,Ashok Arora,"01.07.2003 to
31.03.2006",21.06.2007,"2,70,546/-
5.,ST/523/2010,Pradeep Kumar,"01.07.2003 to
31.03.2006",10.04.2007,"1,61,160/-
6.,ST/524/2010,Sarabjit Singh,"01.07.2003 to
01.03.2006",10.04.2007,"1,61,160/-
7.,ST/525/2010,"M a nje e t Pal
Singh","01.07.2003 to
31.03.2006",21.06.2007,"1,89,819/-
8.,ST/257/2011,Waraich Mktg.,"01.07.2003 to
31.03.2006",11.07.2007,"11,40,888/-
9.,ST/259/2011,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 Singh,"01.04.2004 to
31.03.2008",13.04.2009,"6,97,800/-
16.,ST/1781/2011,Shekhar Chaudhary,2006-07 and,19.03.2009,"3,75,546/-
17.,ST/1802/2011,Nitesh Dixit,"2007-08
01.07.2004 to
31.07.2008",16.10.2008,"6,63,113/-
18.,ST/56/2012,Paramjeet Amole,"July, 2003 to
March, 2005",25.09.2009,"77,599/-
19.,ST/86/2012,Ritu Rastogi,"July, 2003 to
Sep.2008",24.10.2008,"29,00,676/-
20.,ST/126/2012,Ritu Rastogi,"Oct. 2003 to
March, 2008",---,"26,64,121/-
21.,ST/645/2012,Kavita Sukhija,"01.04.2003 to
31.03.2010",20.04.2009,"2,65,403/-
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,"C C E Vs.Ajeet
Singh","2006- 07 to
2009-10",13.09.2010,"3,70,283/-
27.,ST/852/2012,"C C E 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
2009-10",13.09.2010,"2,21,502/-
29.,ST/854/2012,"C C E Vs.Sunita
Singh","2006- 07 to
2009-10",13.09.2010,"3,95,522/-
30.,ST/863/2012,"CCE VS.S hri
Krishna Murari","2006- 07 to
2009-10",13.09.2010,"Rs.2,57,306/-
31.,ST/864/2012,"CCE Vs. Shailendra
Srivastava","2006- 07 to
2009-10",13.09.2010,"Rs.3,52,088/-
32.,ST/865/2012,"CCE Vs Nandita
Pandit","2006- 07 to
2009-10",13.09.2010,"Rs.3,21,496/-
33.,ST/866/2012,"C C E Vs.Suchi
Naithani","2006- 07 to
2009-10",13.09.2010,"Rs.2,18,196/-
34.,ST/867/2012,"CCE Vs. Saurabh
Saxena","2006- 07 to
2009-10",13.09.2010,"Rs.2,35,043/-
35.,ST/868/2012,"C C E Vs.Vandana
Nigam","2006- 07 to
2009-10",13.09.2010,"Rs.3,14,256/-
36.,ST/869/2012,"CCE Vs.Prem Lata
Singh","2006- 07 to
2009-10",13.09.2010,"Rs.3,63,725/-
37.,ST/870/2012,"C C E Vs.Sharmila
Gupta","2006- 07 to
2009-10",13.09.2010,"Rs.86,438/-
38.,ST/878/2012,"CCE Vs. Tarun
Prasad","2006- 07 to
2009-10",13.09.2010,"Rs.3,08,810/-
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, Shri Krishna Murari, Shri Shailendra Srivastava, Nandita Pandit, Suchi Naithani, Saurabh",,,,,
Saxena, Vandana Nigam, Prem Lata Singh, Sharmila Gupta, Tarun Prasad were allowed by the Commissioner, against which the Revenue is in",,,,,
appeals.,,,,,
Heard both the sides.,,,,,
Shri Kapil Kher, Sr.Advocate, Shri J.K. Mittal, Advocate, Shri Vineet Singh, Advocate, Shri Abhisek Jaju, Advocate, Shri Sidhant Jain, Advocate,",,,,,
Shri Nitish Garg, Advocate and Shri Kamal Gupta, Advocate, ld. Counsels representing the Appellants 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 sold the same. They are not engaged in promoting the sales of Amway products. The Department has confirmed,,,,,
service tax demands on the entire amount of sales commission received from Amway, a substantial portion of which is the sale incentives received on",,,,,
certain volume of purchase of the Amway products made by the Distributor from Amway during a particular month.,,,,,
(2) There is no specific allegation as well as the mention of the amount of commission attributable to the sales caused by the sales group 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 personâ€. In the present case, the Distributors are the individual persons. The Board vide Circular",,,,,
No.62/11/03/ST dated 25.08.2003 has clarified that individual cannot be treated as a commercial concern. The Tribunal in the case of Mangal Vs.,,,,,
CCE, Jaipur reported in 2008 (11) STR 17 has also held that during a period prior to 1.5.2006, individuals could not be treated as a commercial",,,,,
concern. In view of this, irrespective of whether the Distributors in these cases had provided Business Auxiliary Service to Amway or not, no service",,,,,
tax can be charged from them on the amount of commission received 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 proviso to Section 73(I) of Finance Act, 1994 is not invokable, as there was no wilful mis-statement,",,,,,
suppression of facts or contravention of the provisions of Finance Act, 1994 or of the Rules made thereunder with intent to evade payment of service",,,,,
tax on the part of the assessees. For the same reasons, there is no justification for imposition of penalty on the assessees under Section 76, 77 and 78",,,,,
of the Finance Act, 1994.",,,,,
Shri Gobind Dixit, ld. Departmental Representative, defended the findings 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 that the",,,,,
activities of the Distributors of Amway in these cases is covered by the definition of Business Auxiliary Service under Section 65(105)zzb read with,,,,,
Section 65(19)(i) of the Finance Act, 1994 and in this regard, he cited the judgement of the Tribunal in the case of - (a) Shri Surendra Singh Rathore",,,,,
& Ors. Vs. CCE, Jaipur-I reported in 2013 (3)ECS 224 (Tribunal-Delhi) and also in the case of Shri Mahaveer Saharan Vs. CCE & ST, Jaipur - Final",,,,,
Order No.57681/2013 dated 19.09.2013, wherein 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 Act, 1994. Shri Dixit pleaded that ratio of",,,,,
these judgements of the Tribunal is squarely applicable to the facts of these cases. With regard to the limitation, he pleaded that the Distributors in",,,,,
these group of cases had neither declared their activities to the Department nor had obtained the service tax registration and hence, they have",,,,,
suppressed the relevant facts from the department and, accordingly, the longer limitation period under proviso to Section 73(1) has been correctly",,,,,
invoked and penalty under Section 76, 77 and 78 of the Finance Act has been correctly imposed. With regard to the assessee’s 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",,,,,
Assessee’s plea for small service providers’ exemption notification no.5/2006-ST, Shri Dixit pleaded that since they were providing the",,,,,
service of marketing or sales promotion of branded products, they would not be eligible for this exemption. Shri Dixit accordingly pleaded that 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, there is no infirmity in the orders passed by the Commissioner (Appeals) and in respect of appeals",,,,,
nos. ST/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.,,,,,
We have considered the submissions from both the sides and perused the records.,,,,,
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, 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 the “Business Starter Guide of Amway India Enterprises Pvt. Ltd.†placed on,,,,,
record, they appoint Distributors, who purchase their products and sell the same at the price not exceeding the MRP fixed by the Amway. The",,,,,
Distributors, in turn, can sponsor a second 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 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,,,,,
Distributor’s 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, depending upon the purchases made by the distributor",,,,,
during a month from Amway, he gets a commission/bonus varying from 6% to 21%. This is the second stream of income of the distributor; (c) A",,,,,
Distributor also gets monthly commission on the basis of the success and productivity as defined by the products’ sales of the distributors,,,,,
appointed through him which constitute his sales group.,,,,,
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 department’s 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.",,,,,
In terms of Section 65(105)(zzb), the service provided to a client by Commercial concern in relation to the Business Auxiliary Service is taxable.",,,,,
The term “Business Auxiliary Service†is defined under Section 65(19) of the Finance Act, 1994 as under:-",,,,,
“Section 65(19): “Business auxiliary service†means 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 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) Procurement of goods or services, which are inputs for the client; or x x x x x x x x x x x x x x x x x x x x x x x xâ€",,,,,
According to the Department, the activity of the assessees is “promotion or marketing or sale of the goods produced or provided by or",,,,,
belonging 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, 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 sale of the goods produced or provided by or belonging to the client (Amway), as the sale of the goods purchased by the Distributors",,,,,
from Amway is not the sale of the goods belonging to their client - Amway. Once the Amway products have been purchased by a 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 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 the",,,,,
distributors from sale of the goods in retail which had been purchased by them from Amway and on the commission earned by them every month on,,,,,
purchase of certain quantum of goods from Amway.,,,,,
However, 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 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, in the impugned orders service tax has been demanded on the gross",,,,,
amount of commission and no distinction 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. 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,,,,,
Distributor’s sales group, these matters would have to be remanded to the Original Adjudicating Authority.",,,,,
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 nos.",,,,,
ST/851 to 854, 863, 864, 865, 866, 867, 868, 869, 870 and 878/2012 is that the assesses are individuals and during the period till 30.04.2006, service tax",,,,,
was chargeable only on the services provided to a client by a commercial concern in relation 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 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 of appeals, the Appellants in Appeal",,,,,
No.ST/257/2011 and ST/259/2011 are proprietary firms who, without any doubt, are commercial concerns.",,,,,
Another point of dispute is as to whether duty exemption under notification no.5/2006-ST would be admissible to the Distributors in this group of,,,,,
cases. In this regard, the Department’s 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 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 hence,",,,,,
marketing or sales promotion of a branded product does not come under the exclusion category as mentioned in the proviso to notification no.6/05-ST.,,,,,
In this group of 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.",,,,,
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 Department’s 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 and deliberate violation of the provisions of Finance Act, 1994 and of the Rules made thereunder with intent to evade payment of tax. On",,,,,
considering the rival submissions on this point, we are of the view merely because the assesses did not apply for Service Tax Registration or did not",,,,,
file ST-3 Returns or did not declare their activities to the jurisdictional central excise authorities, it cannot be inferred that this was a wilful act with",,,,,
intent to evade payment of service tax. We also take notice 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 Serviceâ€,,,,,
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 taxable under Section 65(105)",,,,,
(zzb) read with Section 65(19) of the Finance Act, 1994, there was no scope for doubt. As held by the Apex Court in the case of Continental",,,,,
Foundation Joint Venture Vs. CCE, Chandigarh reported in 2007 (216) ELT 177 (SC) when there is scope for doubt in the mind of an assessee on a",,,,,
particular issue, the longer limitation period, under proviso to Section 11A(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. 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.,,,,,
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 this order. The appeals filed by the,,,,,
Distributors (assessee) as well as those filed by the Department stand disposed of as above.,,,,,
[Order pronounced in open court on 9/6/2015].,,,,,