Custom, Excise & Service Tax Tribunal
Smt. A. Vijaya vs Cce, Salem on 16 December, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
ST/362/2010
(Arising out of Order-in-Appeal No. 33/2010-ST (SLM) dated 18.03.2010, passed by the Commissioner of Central Excise (Appeals), Salem).
1. Smt. A. Vijaya : Appellant
Vs.
CCE, Salem : Respondent
ST/422 - 423/2010 (Arising out of Order-in-Appeal No. 36/2010-ST (SLM) dated 30.03.2010, and Order-in-Appeal No. 36/2010-ST (SLM) dated 30.03.2010, passed by the Commissioner of Central Excise (Appeals), Salem).
2. Shri K. Srinivasan
3. Shri M. Sundaravadivel Vs. CCE, Salem : Respondent Appearance Shri C. Seethapathy, Adv., For the appellants Shri Veerabhadra Reddy, JC (AR) For the respondent CORAM Honble Shri R. PERIASAMI, Technical Member Honble Shri P.K. CHOUDHARY, Judicial Member Date of Hearing/Decision: 16.12.2015 FINAL ORDER No. 41776-41778 / 2015 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 30.04.2006. The details regarding the period of dispute, date of SCN issued and the amount involved in all the three appeals are as under:-
Sl.No. Appeal No Appellant Vs. Respondent Period of dispute SCN dated ST Amount in Rs.1
ST/362/2010 A. Vijaya Vs. CCE Salem 01.10.2003 to 30.04.2006 17.04/2009 4,86,489 2 ST/422/2010 K. Srinivasan Vs. 01.10.2003 to 30.04.2006 04.02.2009 4,95,669 3 ST/423/2010 M. Sundaravadivel Vs. CCE Salem 01.10.2003 to 30.04.2006 15.04.2009 12,82,365 On the basis of the intelligence gathered that 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 Act. On appeal, the Commissioner (Appeals) in his impugned orders upheld the demand and upheld the penalty imposed under Section 77 and set aside the penalty imposed under 76 and 78 of the Finance Act. Hence the present appeals.
3. Heard both sides.
4. The Ld. Advocate appearing on behalf of the appellant reiterated the grounds of appeal and submits that the appellants are individuals and household persons engaged in multilevel marketing of Amway products. They buy the products from Amway and sell 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 been discharged by the Amway. The amount received from Amway as commission is not taxable as no service is rendered for sales promotion. He relied the Tribunals Principle Benchs recent Final Order No. 51818-51855/2015 dated 9/06/2015, and submits that the Principle Bench in a batch of appeals decided the identical issues and he drew our attention to para 12 of the order at page 13-14 and paras 16-17 and submits that the Tribunal after examining the case held that no service tax is chargeable on 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 purchases of certain quantum of goods from Amway.
5. On the other hand, the Ld. AR reiterates the findings of the OIA and submits that the appellants are not only made retail sale of direct marketing but they are also engaged in sales promotion on behalf of Amway by appointing 2nd line and 3rd line distributors which is directly covered under the BAS for sales promotion. He relied para 13 & 14 of the Tribunals Principle Bench Order.
6. We have carefully considered the submissions made by both 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 which the goods are sold is determined based on the MRP price affixed by Amway. In this regard we find on identical issue the Tribunals Principle Bench, New Delhi, in the case of Mr. Charanjeet Singh & others (Batch of 38 appeals), in Final Order No. 51818 51855/2015 dated 09.06.2015, set aside the impugned orders passed by the Commissioner (Appeals) and remanded the matters to the original authority for denovo adjudication. The relevant portion of the said decision is as under:-
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 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, 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.
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 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 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 Serviceis defined under Section 65(19) of the Finance Act, 1994 as under:-
Section 65(19): Business auxiliary servicemeans 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 clientincludes 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 x
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 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 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.
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 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 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.
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 Departments 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.
16. 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 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 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 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 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 11 A(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. We find from the above order that the above Tribunal decision is squarely applicable to the present case as the issue in the present case is identical and service tax was demanded on the commission received from M/s. Amway India Enterprises Pvt. Ltd. As the issue has been agitated all over India and service tax was demanded on sale of goods by the Amway distributors, 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 the service tax demand on the gross amount received as commission by the appellants, which involved both the commission received by the appellants on direct retail sale as well as the commission received for the sale of goods through the second level and third level distributors. The adjudicating authority has also not examined the applicability of the exemption Notification No. 6/2005-ST.
7. By respectfully following the above Tribunals Principle Bench decision, we hold 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 goods through second and third level distributors is sustained. Accordingly we set aside all the three impugned orders and remand the matters to the adjudicating authority with the direction to re-quantify the service tax demand on the commission received on the volumes of purchases made by the distributors, sponsors enrolled by the particular distributor and following the directions of the Principle Bench order at para 13 to 15 and he shall give reasonable opportunity to the appellants before deciding the case in denovo on the issues referred above. The impugned orders are set aside and remanded to the original authority. The appellants are directed to produce the relevant documents before the adjudicating authority. Accordingly, all the three appeals are allowed by way of remand in the above terms.
(Dictated and pronounced in open court)
(P.K. CHOUDHARY) (R. PERIASAMI) JUDICIAL MEMBER TECHNICAL MEMBER
BB
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