Custom, Excise & Service Tax Tribunal
Shri Surendra Singh Rathore vs Cce, Jaipur I on 27 July, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066 Date of Hearing : 27.06.2013 ST/1004/2011 [Arising out of Order-in-Appeal No. 153(CB)ST/JPR-II/2011dated 29.03.2011 passed by the Commissioner Central Excise (Appeal), Jaipur-I] Shri Surendra Singh Rathore Appellant Vs. CCE, Jaipur I Respondent
ST/1005/2011 [Arising out of Order-in-Appeal No. 172(CB) ST/JPR-II/2011 dated 30.03.2011 passed by the Commissioner Central Excise (Appeal), Jaipur-I] Smt. Chanda Bohra Appellant Vs. CCE, Jaipur I Respondent Appearance:
Shri S.K. Sarwal, Advocate - for the appellant Shri M. S. Negi, DR - for the respondent Coram : Honble Mr. Justice G. Raghuram, President Honble Mr. Sahab Singh, Member (Technical) Final ORDER No. 57072-57073/2013 Per Justice G. Raghuram:
Under Section 65(19) (i) of the finance Act, 1994 Business Auxiliary Service means any service in relation to promotion or marketing or sale of goods produced provided by the client. Revenue proceeded against the assessee for having provided Business Auxiliary Service; for failure to obtain registration and filing returns disclosing amounts received from the taxable service. Show Cause Notice dated 30.08.2010 was issued alleging evasion of service tax to the tune of Rs. 45,579/-, for the period 01.02.2008 to 31.03.2010, besides proposing levy of interest and penalties under relevant provisions of the Finance Act, 1994 (the Act). After consideration the petitioners objections to the Show Cause Notice and providing a personal hearing, the adjudicating authority confirmed the demand of Rs. 45,579/-, along with interest under Section 75 and penalty under Section 77. The specified penalty under Section 78 was also imposed besides penalty under section 76 of the Act.
2. Aggrieved, the assessee preferred an appeal which was rejected by the Commissioner Central Excise (Appeals) Jaipur- ii vide order dated 29.03.2011. The appellate authority concurred that the appellant had provided the taxable Business Auxiliary Service; had deliberately failed to obtain registration; had failed to file returns; nor had remitted service tax on the commission received from M/s Fashion Suitings Pvt. Ltd., Bhilwara Rajasthan (for short FSL), for providing the Business Auxiliary Service of promotion and marketing of FSL products. Aggrieved by the appellate order, this appeal is preferred.
3. A similar demand of service tax of Rs. 1,60,926/- along with interest and penalties under Sections 76,77,78 of the Finance Act, was confirmed against Smt. Chanda Bohra vide Order-in-Original No. 26/2010-2011(ST) dated 24.10.2010. The appeal filed by her before Commissioner (Appeals) was rejected vide Order-in-Appeal No. 172 (CB) ST/JPR-II/2011 dated 31.03.2011. She has also challenged the appellate order.
4. The agreement between the appellants and FSL was for the purpose of selling the companys product as per the RCM Business Marketing Plan (RCM stands for Right Concept Marketing Plan). According to terms and conditions of the agreement between the parties, FSL issues a scratch card having a password along with a standard product Kit of the Products by charging a price for same. Any person can submit an application through the internet using password and after acceptance becomes a distributor of the company for the purpose of selling the companys product under the RCM plan. Minimum purchases in terms of RCM products prescribed by the company from time to time is compulsory for a distributor during the month in which he desires to have the commission credited in his account. Company is obligated to remit consideration to the distributor for selling the companys product as per terms of conditions specified in the RCM Business Marketing Plan of the company. Particulars of the RCM Business Marketing Plan have been set out in the adjudication order. As per this plan a distributor gets commission on the supply made by FSL and also a share in the commission for introducing new customers, after such distributor propagates/promotes FSL products under share your views with your friends and relatives concept. Thereafter, when a new customer starts using FSL products they in turn will propagate/promote FSL products to other persons and the distributor gets commission in respect of purchases made by such introducees, down the line. He shares the commission with others on such purchases. Consequently FSL sales are boosted.
5. The question is whether the commission received by the appellants as a consequence of the RCM Business Marketing Scheme in relation to discounts offered, constitutes consideration paid by the service receiver FSL to the service provider/appellants.
6. Shri Sarwal Ld. Counsel for the appellants submitted that the RCM Business Marketing Plan is a Multilevel Marketing Scheme and in this scheme the first distributor A approaches FSL and purchases their products of certain minimum value. A recommends FSL products to another distributor B and B recommends to subsequent introducees to the scheme namely C D and E and the further introducees C D and E are not known to A. Ld. Advocate has the submitted that A gets commission on purchases made by C D and E. It is alternatively contented on behalf of the appellants that the so-called commission paid by FSL to the appellant in respect of purchases made by subsequent distributors C D and E does not amount to commissions for promotion or marketing activities permitted by the petitioner but is dividend paid to A for his efforts for introducing the scheme to new introducees who also become distributors of FSL.
7. On analysis of the terms and conditions of similar agreements between the FSL and the petitioners, the adjudicating authority confirmed the tax liability against the appellants. We are satisfied that RCM (Right Concept Marketing) Business Marketing Plan is neither a new arrangement nor there is any concept of dividends as suggested by the Ld. Counsel. This is a clear Multilevel Marketing Service Scheme. The consideration/commission received by the appellants from FSL (this fact is not disputed) is the result of the marketing/promotion of FSL products by the appellants and constitutes a service (Business Auxiliary Service), provided in respect of FSL products to FSL. The commission/consideration is provided according to the terms and conditions, for marketing/promotion efforts by the appellants. The receipt of commission by the appellants clearly makes them providers of Business Auxiliary Service as defined under Section 65 (19) of the Act. The appellate and adjudication orders are impeccable on this analysis and warrant no interference.
8. Ld. Counsel for the Appellant has also contended that imposition of penalties on the appellants is not sustainable as the appellants were under the bona-fide belief that the service provided by them was not Business Auxiliary Service. We are unable to accept this contention as we discern no ambiguity in the statutory definition of Business Auxiliary service that could have sustained on given rise to any bona-fide belief as to the activities of the appellants being not Business Auxiliary Service. We therefore confirm the penalties imposed on the appellants.
9. We accordingly uphold the impugned orders in respect of tax and interest and penalties as well.
10. Appeals are therefore rejected. No cost however.
(Justice G. Raghuram) President (Sahab Singh) Member (Technical) Neha 1