Service Tax Chargeable On Commission Received By Distributor From Company On Products Purchased By Sales Group: CESTAT

The Bench of Dr. Rachna Gupta (Judicial) and Hemambika R. Priya (Technical) observed that “the assessee is an individual, who cannot be faulted if she thought that she was only a dealer; a difference between the purchase price and the sale price or MRP is available to her and therefore, it cannot be said that there was an intention to evade service tax. The said issue arose only because Amway called such amount as 'commission' whereas the assessee simply sold the goods to the person who asked a product at a particular MRP……….”

In this case, the assessee/appellant is an individual lady, engaged in marketing and sale of consumer products of AMWAY in the capacity of an authorized distributor.

The assessee received income from AMWAY under three distinct heads viz., 1. Personal Performance Commission (PPC) 2. Sales Commission and 3. Leadership Development Commission.

The department observed that the assessee was engaged in providing taxable services in the category of “Business Auxiliary Service” and allied services, without obtaining requisite registration and without payment of service tax.

A show cause notice was issued to the assessee. The demand was confirmed by the Assistant Commissioner.

Aggrieved by the decision of Assistant Commissioner the assessee filed an appeal to the Commissioner (Appeals) who rejected the appeal. The assessee has challenged the order passed by the Commissioner (Appeals) before the Tribunal.

The department submitted that the assessee was a distributor, who purchases goods from Amway at the Distributors Acquisition Price (DAP)) and sells the same in retail at price not exceeding MRP fixed by the Amway. This activity of the Distributor, 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 Distributor from Amway is not the sale of the goods belonging to her client, i.e. Amway.

The Tribunal stated that “the activity of the assessee is the activity of marketing or sale of the goods belonging to Amway and the commission received by the Distributor from Amway, is linked to the performance of his sales group is liable 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.”

The bench opined that it is apparent that the assessee was in doubt regarding the leviability of service tax on the said transactions as she was under the impression that she was simply selling the goods at a higher MRP. Therefore, the extended limitation period of 5 years under proviso to Section 73(1) of the Finance Act, 1994 cannot be sustained.

In view of the above, the Tribunal upheld the demand on commission for the normal period and set aside the demand for extended period.

Case Title: Harvinder Kaur Malhotra v. Commissioner of Central GST & Central Excise, Jodhpur

Case Number: Service Tax Appeal No. 50731 Of 2019

Counsel for Petitioner/ Assessee: Ajay K. Mishra

Counsel for Respondent/ Department: Rajeev Kapoor

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