2019 (6) TMI 684 - AT - Service Tax

Appellant wins case on business kits sales not classified as support services under Finance Act.

M/s Tulip Global Pvt. Ltd. Versus The Commissioner of Central Excise

The Tribunal ruled in favor of the appellant, determining that the appellant's sale of business kits primarily containing suit lengths did not constitute ... Classification of services - Business support service or not - multi-level marketing of the goods - HELD THAT:- The appellant is primarily engaged in marketing/selling of business kits mainly containing suit lengths with certain other promotional documents. This activity of marketing/selling is more akin to multi-level marketing system. The other activities undertaken by the appellant are for its own business promotion and not for BSS to the distributors. It is a matter of record that the appellant has sold its products directly to the end consumers (new persons) introduced by the existing distributors, who as per the scheme become distributor of the appellant by virtue of purchase of their product, namely, suit length. It can easily be inferred that the Business Support Service includes the activities which support the main business activity like service of providing infrastructure for running an office or a business and like activities - In the present case the appellant has adopted a marketing strategy for sale of its product and has not solicited or provided any Business Support Service to the distributors. It is also relevant that the payments which have been received by the appellant is for sale of its product, namely suit length of various brands on which it has paid the applicable Sales Tax/VAT to the State Government. The activity undertaken by the appellant is primarily a sale of goods and there is no element of Business Support Services for Business or Commerce - appeal allowed - decided in favor of appellant. Issues:1. Whether the appellant is liable to pay service tax for rendering support services for business and commerce to its distributorsRs.2. Whether the appellant's activity can be classified as a business support service under the relevant provisions of the Finance Act, 1994Rs.Analysis:Issue 1:The appellant, engaged in selling business kits containing suit lengths under a multi-level marketing plan, was alleged to have provided support services to distributors without paying service tax. The department issued a show cause notice demanding a substantial service tax amount. The appellant contended that it was registered for VAT, paid VAT on suit length sales, and was not providing business support services. The appellant argued that the commission paid to distributors covered their service tax liability. The department claimed the appellant erred in not paying service tax on the entire receipt. The Tribunal noted the appellant's direct sale of products to end consumers introduced by distributors, who then became distributors themselves. The Tribunal analyzed the definition of Business Support Service under the Finance Act, 1994, and found the appellant's activities aligned more with a multi-level marketing system than providing support services.Issue 2:The Tribunal examined the evolution of the definition of Business Support Service and relevant clarifications provided by the Department over the years. It highlighted that the appellant's sales of suit lengths in business kits, along with VAT payment, constituted a pure sale of goods rather than a service to distributors. The Tribunal concluded that the appellant's activity was primarily the sale of goods, devoid of Business Support Services for Business or Commerce. Consequently, the Tribunal set aside the order-in-original, allowing the appeal in favor of the appellant.In conclusion, the Tribunal ruled in favor of the appellant, holding that the appellant's activity of selling business kits mainly containing suit lengths did not amount to providing business support services, and thus, the demand for service tax was unjustified.