Custom, Excise & Service Tax Tribunal
Manish Kumar Khaptawala vs Surat-I on 17 August, 2018
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
Appeal No.ST/352-355,394/2010-DB
Appeal No.ST/108/2012-DB
[Arising out of OIA-RKA/263/SRT-I/2010 Dated 19.04.2010 passed by Commissioner of Central
Excise, Customs and Service Tax-SURAT-I]
[Arising out of OIA-RKA/274/SRT-I/2010 Dated 28.04.2010 passed by Commissioner of Central
Excise, CUSTOMS (Adjudication)-SURAT-I]
[Arising out of OIA-RKA/271/SRT-I/2010 Dated 20.04.2010 passed by Commissioner of Central
Excise, CUSTOMS (Adjudication)-SURAT-I]
[Arising out of OIA-RKA/270/SRT-I/2010 Dated 20.04.2010 passed by Commissioner of Central
Excise, CUSTOMS (Adjudication)-SURAT-I]
[Arising out of OIA-129/2010/STC/HKJ/COMMR-A-/AHD Dated 19.04.2010 passed by
Commissioner of Service Tax-SERVICE TAX - AHMEDABAD]
[Arising out of OIA-299-300/2011-STC-/KANPAZHAKAN/COMMR-A-/AHD Dated 24.11.2011
Commissioner of Service Tax-SERVICE TAX - AHMEDABAD]
M/s Manish Kumar Khaptawala Appellant
Pragna Arunkumar Patahk
Ravi Prakash
Smita Verma
Master Bhavna N Patel
Binal Manoj
Vs
C.C.E. & S.T.- Suart-i Respondent
C.S.T., Service Tax - Ahmedabad Represented by:
For Appellant: Shri Anil K. Kher (Advocate) For Respondent: Shri K.J. Kinariwala (AR) CORAM:
HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) Date of Hearing: 07.08.2018 Date of Decision: 17.08.2018 Final Order No. A / 11772-11777 /2018 Per: Ramesh Nair The issue involved in the present case is that 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.
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2. Sh. Anil Kher Ld. Counsel appearing on behalf of the appellant at the outset submits that the very same issue has been considered in case of number of distributors by Delhi Bench in the case of Charanjeet Singh Khanuja Vs. CST, Indore/ Lucknow/ Jaipur/ Ludhiyana 2016 (41) STR 213 Tri-Del), 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.
He prays for following the same judgment.
3. Sh. K. J. Kinariwala Ld. Assistant Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order.
4. On careful consideration of the submission made by both the sides.
We find that all the appellants are similarly placed distributors of Amway India Enterprise Pvt Ltd, as the various distributoras involved in the judgment of Charanjeet Singh Khanuja (Supra), we find that in the said judgement the Division Bench of this Tribunal passed following order:
"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, 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.
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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 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.
11. 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 xxxxxxxxxxxxxxxxxxxxxxx "
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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13. 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.
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 Nos. ST/851 to 854, 863, 864, 865, 866, 867, 868, 869, 870 and 878/2012 is that the assessees are individuals and during the period till 30-4-2006, 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.
15. 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-S.T. In this group of cases, the eligibility of the Distributors (assessees) for the exemption Notification No. 6/2005-S.T. 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 assessees that there was absolutely no suppression or mis-statement of facts or deliberate contravention of the provisions of
5|Page ST/352-355,394/2010,ST/108/2012-DB 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.
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 this order. The appeals filed by the Distributors (assessee) as well as those filed by the Department stand disposed of as above."
As per above observation, we find that the principle was laid down that which amount of commission will be liable to service tax and which will not, accordingly, the issue stand settled in terms of above judgment.
Therefore, following the above judgment, we set aside the impugned order and remand the matter to the adjudicating authority to pass a fresh order on the line of observation made in the case of Charanjeet Singh Khanuja (Supra). The appeals are allowed by way of remand to the adjudicating authority.
(Pronounced in the open court on 17.08.2018)
(Raju) (Ramesh Nair)
Member (Technical) Member (Judicial)
Seema