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(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.

8. We have considered the submissions from both the sides and perused the records.

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.

(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 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.

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.