Mr. Pritpal Singh Sandhu vs Cce& S.T.-Ludhiana

[Arising out of order-in-appeal no. LUD-EXCUS-000-APP/105to1071415 dated 28/04/2014 passed by CCE & S.T.-Ludhiana]

1. Whether Press Reporter may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

Mr. Pritpal Singh Sandhu Appellant

Vs.

CCE& S.T.-Ludhiana Respondent

Appearance: Shri Anil Kher, Senior Advocate and Ms. Anisha Mahajan, Advocate for the appellant

Shri B.B. Sharma, DR for the respondent.

Coram: Coram: Coram: Honble Mr. Justice G. Raghuram, President

Honble Shri R.K. Singh, Member (Technical)

Final Order No. 52060/2015

Per: R.K. Singh

Stay application and appeal have been filed against order-in-appeal No. LUD-EXCUS-000-APP/105to1071415 dated 28/04/2014 in terms of which the service tax demand of Rs. 90,995/- was confirmed vide order-in- original dated 18/02/2013 was upheld along with interest. However, penalties under Sections 75A, 76, 77 and 78 of the Finance Act 1994 were set aside. The impugned demand was confirmed under Business Auxiliary Service on the commission received from M/s Amway by the appellant by virtue of being a distributor of M/s Amway.

2. The appellant has contended that- (i) the demand pertains to the extended period and as there was no wilful misstatement or suppression of facts, the same is time-barred. (ii) it was not promoting any product, and therefore, is not covered under the scope of business auxiliary service as defined under Section 65 (19) of the Finance Act 1994. (iii) the commission received pertained to sale of goods. (iv) During the relevant period there was confusion even in the Revenue Department and in some cases such demands were dropped, and therefore also, the extended period is not invokable.

3. The Ld. DR fairly stated that the issues involved in this case have been decided by CESTAT in appeal number ST /138/2009 pertaining to Mr. Charanjit Singh and other related appeals vide final order no. 51818-51855 dated 09/06/2015 and that this case should, therefore, be remanded for being decided de-novo by the original adjudicating authority in terms of the aforesaid judgement of CESTAT.

4. We find that the issues involved in the present appeal are the same as the ones involved in the appeal decided by the aforesaid CESTAT order dated 09/06/2015. The decision of CESTAT on the issues involved is contained in Paras 12, 13, 14, 15 of the said judgement. These Paras are reproduced below for ease of reference:

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.

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.

5. In the light of the foregoing, we waive the requirement of pre-deposit, set aside the impugned order-in-appeal and remand the case to the original adjudicating authority for de-novo adjudication in terms of the aforesaid CESTAT order dated 09.06.2015.

(Justice G Raghuram)

President

(R.K. Singh)

Member (Technical)

Ritu