2015 (11) TMI 468 - AT - Service Tax

CESTAT: Commission from Amway not taxable as BAS for retail sales, Sales group performance commission taxable.

The CESTAT ruled that commission received by distributors for selling goods purchased from Amway is not taxable under Business Auxiliary Service (BAS). ... Business Auxiliary Service - Receipt of commission - small service provider exemption upto ₹ 10 lakhs - brand name belongs to another person - Held that:- Appellant has received commission from Amway India in connection with multi level marketing, which was held to be liable to service tax under BAS. The appellant has contended that he is not covered under the scope of BAS as the transactions involved sale and purchase of goods. Ld. counsel for the appellant fairly conceded that the issue has since be decided by CESTAT in the case of Mr. Charanjeet Singh Khanuja & Others Vs. CST, Indore & Others [2015 (6) TMI 585 - CESTAT NEW DELHI] and that these appeals can be remanded to the original adjudicating authority for deciding the matter in accordance with the said judgement. - Impugned order is set aside - Decided in favour of assessee. Issues:1. Whether commission received from Amway India in connection with multi-level marketing is liable to service tax under Business Auxiliary Service (BAS).2. Whether distributors purchasing goods from Amway and selling them in retail are covered under BAS.3. Whether commission received by distributors on the basis of sales group performance constitutes Business Auxiliary Service.4. Whether individuals can be treated as a commercial concern for the purpose of service tax under BAS.5. Whether duty exemption under notification no.5/2006-ST is applicable to distributors promoting sales of branded products.Analysis:1. The appeals were filed against Orders-in-Appeal confirming service tax demand on commission received from Amway India under BAS. The appellant argued that the transactions involved sale and purchase of goods, not covered under BAS. The CESTAT referred to a previous judgment and concluded that commission received by distributors for selling goods purchased from Amway does not constitute service to Amway, hence not taxable under BAS.2. The CESTAT clarified that distributors purchasing goods from Amway at a certain price and selling them in retail are not engaged in the promotion, marketing, or sale of goods belonging to Amway. The sale of goods purchased by distributors does not amount to service to Amway, as the goods cease to belong to Amway once purchased by distributors.3. Regarding commission received by distributors based on the performance of their sales group, the CESTAT held that this activity constitutes sales promotion provided to Amway and is taxable under BAS. However, the distinction between commission earned by a distributor individually and on the basis of sales group volume needs to be considered for quantifying the service tax demand.4. The CESTAT rejected the argument that individuals cannot be treated as a commercial concern for service tax purposes. It stated that even individuals engaged in commercial activities should be considered as business concerns, and the term 'commercial concern' includes proprietary firms owned by individuals.5. The CESTAT addressed the issue of duty exemption under notification no.5/2006-ST for distributors promoting sales of branded products. It clarified that promoting sales of branded products does not amount to providing branded services, and distributors are eligible for the exemption. However, the eligibility of distributors for the exemption needs further examination by the Original Adjudicating Authority.In conclusion, the CESTAT set aside the Orders-in-Appeal and remanded the cases to the original adjudicating authority for fresh adjudication in accordance with the CESTAT order dated 09.06.2015.