Custom, Excise & Service Tax Tribunal
P C Pondian vs Madurai on 11 November, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I
Service Tax Appeal No. 40550 of 2016
(Arising out of order in appeal no. MAD-CEX-000-APP-067-15 dated 26.11.2015 passed
by the Commissioner of Service Tax (Appeals-I), Madurai)
P.C. Pondian .... Appellant
M.1, Old No.16, New No.455,
R.M. Colony III Cross, Opp to Water Tank
Dindigul - 624 001
VERSUS
Commissioner of GST and Central Excise ...Respondent
No.4, Lal Bahadur Shashtri Road, Bibikulam Madurai - 625 002.
APPEARANCE:
Shri. M.N. Bharati, Advocate for the Appellant Shri. N. Satyanarayana, Authorised Representative for the Respondent CORAM:
HON'BLE MR. M. AJIT KUMAR, MEMBER (TECHNICAL) HON'BLE MR. AJAYAN T.V., MEMBER (JUDICIAL) FINAL ORDER No.41293/2025 DATE OF HEARING: 24.07.2025 DATE OF DECISION:11.11.2025 Per AJAYAN T.V.
The appellant P.C. Pondian is aggrieved by the impugned Order in Appeal No. MAD-CEX-000-APP-067-15 dated 01.12.2015 passed by the Commissioner of Service Tax (Appeals-I), Madurai. The order in original no. MAD-CEX-000-COM-JTC-38-14 dated 22-12-2014 of the adjudicating authority was upheld after rejecting the Appellant's Appeal.
2. The brief facts are that the Appellant is engaged in distributing the products of Amway India Enterprises Limited (Amway). The Department formed a view that the Appellant is engaged in the activity of promoting sales/ marketing the products of Amway and earning commission for such activity, and was therefore providing business auxiliary service. The Appellant was issued a show cause notice number 63/2013-ST dated 23- 2 10-2013 alleging that the Appellant has not paid service tax due on the business auxiliary services provided by him from 2008-09 onwards. The notice was issued based on the details of commission received by the Appellant obtained from Amway and the copies of income tax returns and Form 16 / Form 26AS from 2008-09 to 2011-2012, provided by the Appellant vide his letter dated 3-12-2012 on the department's request. The notice proposed a demand of service tax of Rs.6,72,498/- along with applicable interest. The Notice also contained a proposal for imposition of penalties. After due process of law, the adjudicating authority confirmed the demand and imposed equivalent penalty under section 78(1) of the Finance Act 1994 along with applicable penalties under section 77(1)(a), as well as a penalty of Rs.10,000/- under section 77(2) of the Finance Act. Aggrieved, the Appellant preferred an appeal before the first appellate authority. The appellate authority rejected the appeal. Hence, this appeal before us.
3. Shri M.N. Bharati, Advocate appeared on behalf of the appellant and submitted that the appellant is engaged in sale of Amway's products. The commission is earned on the sales made and hence, it is a sales activity and not a service activity. As per the agreement with Amway, the appellant is an independent contractor appointed to purchase Amway products from Amway India and to resell/distribute them as an independent vendor acting on his own account. The agreement categorically states that the Appellant is not a broker, commercial agent, contracting representative or any other representative of Amway India.
4. The Ld. Counsel further points out that the SCN has not put the appellant to notice as to the exact subclause of the definition under which the Department intended to cover the alleged service. That apart, in the quantification the Department had also included an amount that was indicated as 'Sundry Debtors', without any enquiry. It is also submitted that the Ld. Appellate Authority has relied on material downloaded from Amway's Website which was neither relied upon in the SCN nor put to the appellant's notice. As such, the impugned order is rendered untenable for this reason too.
35. He further submits that the SCN is barred by limitation as no positive act of suppression with intent to evade payment of duty has been alleged or evidenced in the SCN. He submits that since the Appellant has also stated his bona fide belief that he is engaged in sale activities, as was his impression formed from the distributor agreement with Amway, the burden rests on the Department to prove that the appellant had wilfully suppressed facts or made wilful misstatement with intent to evade payment of duty.
6. He further submits that similar issues have come up for consideration of the tribunal in the decisions in United Telecoms Ltd versus CST Hyderabad, 2011 (22) STR 571 (Tri-Bang) and Balaji Enterprises versus Commissioner of Central Exercise & ST, Jaipur, 2020 (33) GSTL 97 (Tri-Bang). He also placed reliance on the decision in Charanjit Singh Khanuja Vs CST Indore/ Lucknow/ Jaipur/ Ludhiana,2016(41) STR 213 (Del) wherein, on a similar set of facts pertaining to distributors of Amway, the Tribunal had held that an extended period of limitation could not have been invoked.
7. Shri N. Satyanarayana, Ld. Authorised Representative, appearing on behalf of the respondent, reiterates the findings in the impugned order in appeal.
8. We have heard both sides, perused the appeal records and the case laws provided.
9. On perusal of the Appeal records, we find that the SCN, while alleging that the appellant has rendered business auxiliary services, has not put him to notice as to which is the relevant subclause of the definition that the department considers is applicable to him. That apart, we also notice that the appellant is right in his submission that in the impugned order in Appeal, the Appellate Authority has relied on material downloaded from Amway Website, which has neither been put to him, nor was a subject matter of the SCN. Thus, the Commissioner Appeals has violated a fundamental rule of justice by relying on material collected behind the appellant's back without disclosing the same to the appellant nor giving 4 the appellant an opportunity to rebut or explain the same. Even otherwise, the Commissioner Appeals could not have improved upon the SCN for any lack of material therein. The impugned order in appeal is vitiated on this count alone.
10. Moreover, on examination of the decisions relied upon, it is seen that in the decision in United Telecoms Versus CST Hyderabad 2011 (22) STR 571 (Tribunal-Bangalore), the Tribunal has held as under:
"6. We find that no demand can be confirmed against any person towards service tax lability unless he/it is put on notice as to its exact liability under the statute. In the show-cause notice basic to the proceedings the impugned activities were proposed to be classified under BAS and BSS This proposal was confirmed by the Original Authority. We find that this order is not in accordance with the law. The impugned order held that UTL provided services on behalf of the client Le Director e-Seva and sustained the demand. We find that under BAS there are seven sub-clauses. Demand under sub-clause (vii) could be on activities relatable to either one of the preceding six sub-clauses. Therefore, if a notice issued proposing demand under BAS the noticee will not be aware as to the precise ground on which tax is proposed to be demanded from him unless the sub-clause is specified. in the instant case service tax was proposed to be demanded for an activity under BAS and BSS. Under BSS also several activities are listed as eligible under that head. In the absence of proposal in the show-cause notice as to the lability of the assessee under the precise provision in the Act, we find the demand to be not sustainable."
11. This decision has been followed by the tribunal in Balaji Enterprises versus Commissioner of Central Excise & ST, Jaipur, 2020 (33) GSTL 97 (Tribunal-Del), wherein, after referring to yet another decision in CCE Goa Vs Swapnil Asnodkar, 2018 (10) GSTL 479 (Tribunal-Mumbai), the tribunal has again held as under:
"24. The aforesaid two decisions of the Tribunal clearly hold that it is imperative for the Department to specify which specific service contained in the seven clauses of Section 65(19) of the Act is being provided and in the absence of any specific service pointed out in show cause notice, the demand cannot be confirmed as the noticee will not be aware as to which precise service contained in the sub-clause has been rendered by him." (emphasis supplied) 5
12. Further, in the decision in Charanjit Singh Khanuja Vs CST Indore/ Lucknow/ Jaipur/ Ludhiana,2016(41) STR 213 (Del), the Delhi bench of the Tribunal was examining the service tax liability on individuals, who were Distributors of Amway, akin to the present case. Relevant paras of the said decision are reproduced below:
"12. 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.
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16. Another plea raised in these appeals is regarding limitation. It is the contention of the assessees that there was absolutely no suppression or 6 mis-statement 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 assessees 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 assessees 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 assessees 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 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 v. CCE, Chandigarh reported in 2007 (216) E.L.T. 177 (S.C.) 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." (emphasis supplied)
13. In the current factual matrix, as noticed above, the SCN has not notified the appellant of the relevant sub clause of business auxiliary service under which the appellant is liable to be covered. The OIA's reliance on the material collected behind the appellant's back has further vitiated the impugned order. The impugned order is also untenable on merits in light of the findings of the Tribunal in the aforesaid decisions. That apart, 7 it is also evident that the SCN does not bring forth any positive act of the appellant to show that he was not entertaining the bona fide belief as he had stated. The SCN also has not furnished evidence that he has deliberately suppressed facts or made willful misstatements with intent to evade payment of duty. Therefore, the extended period of limitation could not have been invoked.
14. In light of our discussions and analysis above, respectfully adhering to the ratio of the aforementioned decisions, we hold that the impugned order in appeal cannot be sustained and is liable to be set aside. Order accordingly.
The appeal is allowed with consequential relief(s), if any, in law.
(Order pronounced in open court on 11.11.2025)
(AJAYAN T.V.) (M.AJIT KUMAR)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)
psd