CESTAT upheld the demand for service tax as it was non-payment of service tax on an act of suppression to evade payment of duty [Read Order]

The New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has upheld the demand for service tax as it was due to the  non-payment of service tax on an act of suppression to evade payment of duty.  

The department received an information with respect to M/s Fashion Suiting Pvt. Ltd., Bhilwara  who are engaged in multi level marketing under the name Right Concept Marketing .  The goods are marketed and sold by their dedicated network of distributors and the distributors at Multi Level Marketing.  It starts with a person approaching M/s FSL and filling up a form for purchasing the product of a certain minimum value termed as “kit purchase”.  This person filling up the form and buying their kit is a given a unique “Distributor Number‟.  

Step by Step Guidance for Tax Audit & E-filing, Click Here

As per the conditions of Distributor Application Form, the person may become the distributor of the company for the purpose of selling the company‟s products in the framed “RCM business Marketing Plan”.  This distributor is required to sponsor applicants to become distributors of the company in the same manner in which he himself became the distributor.  These new distributors are called his/her down liners.  The chain keeps on moving further in this manner.   

Limitation Period for Filing Appeal under Service Tax Counts From Actual Date of Service, Not Dispatch Date: CESTAT [Read Order]

The department opined that overall business aspect of the company i.e. M/s FSL gets promoted and marketed through this chain.   In consideration of the said promotion/marketing, distributor gets commission in pre-defined manner depending upon his/her own purchases.    The appellants were found to be the first line distributor of M/s FSL hence and were alleged to have provided the Business Auxiliary Service to M/s FSL against the commission received for the purpose. 

However, it was found that the appellants did not pay service tax on the amount of commission received by them.  Resultantly, vide the respective show cause notices as mentioned above, the respective amount of service tax along with the interest at the appropriate rate and the penalties were proposed to be recovered for the respective period as mentioned in the table above.

 The proposals in each of the show cause notices have been confirmed by the original adjudicating authorities by orders as mentioned above.   Appeals against the said orders have been rejected by Commissioner (Appeals) vide the respective orders as mentioned in the table above.  Being aggrieved, the appellant is before this Tribunal.

Get a Complete Kit of Essential Books for Daily Practice, Click Here

It was submitted that the issue involved in these appeals have already been resolved in number of cases wherein it has been held that the activity rendered by the appellants is a service liable to tax but the tax is to be  paid on the commission earned by the appellant for the purchases made by the distributors appointed by him and not for the second line of distributors and listed by M/s FSL.  The authorities below have chosen to tax the value of total commission earned for distributor sponsored by the appellant as well as other distributions sponsored by the subsequent distributors.

GST Proper Officer Must Pass Reasoned Order u/s 75(6) Even If Assessee Does not Respond to SCN: Allahabad HC [Read Order]

 It is further submitted that the directions of remand in regard to value of taxable service have also not been considered by the original adjudicating authority.  The Commissioner (Appeals) vide the impugned order has also failed to consider the same.   The order under challenge is, therefore, prayed to be set aside and all the appeals as mentioned above are prayed to be allowed.

While rebutting these submissions, Departmental Representative has mentioned that the adjudicating authorities below have already categorized the source of income of appellants  into three streams of income.  The appellants are also held not liable to any tax with respect to two streams of income i.e. distributors profit margin and commission for sale or personal consumption.  The service tax has been confirmed only on the 3rd stream of income i.e. commission linked with the performance.  It has been confirmed for want of the proper bifurcation/evidence not been provided by the appellant. Impressing upon no infirmity, all these appeals are prayed to be dismissed.

While following the earlier decisions, Commissioner (Appeals) had earlier remanded back the matters to the original adjudicating authority for de novo proceedings after following the principle of natural justice.  The adjudicating authority have still confirmed the demand observing that the figures submitted by the appellant were not in accordance with the three streams of income as were mentioned in the order of remand.  However, since the commission mentioned in the show cause notice is based on records, hence was accepted as correct.  Based on these findings, the impugned demands were confirmed.

Know How to Investigate Books of Accounts and Other Documents, Click Here

A two member bench of  Dr. Rachna Gupta, Member (Judicial) and P.V. Subba Rao, Member (Technical) found that the appellant has not provided any document to show that out of the alleged amount received by the appellant during the relevant period what amount has been received with respect to the commission received from M/s FSL on the products purchased by his sales group.   On the contrary, when the M/s FSL was requested by adjudicating authorities below to quantify the demand it reported the distributor’s profit margin as “Nil”.  The commission for sale or personal consumption was also reported as “Nil”. 

The entire amount as has been confirmed against the appellants in these appeals was reflected as the amount of commission linked with the performance of appellant.   The Tribunal decision dated 17.10.2016 is with reference two streams of income as mentioned by Commissioner (Appeals) in his order of remanding back to original authorities.  Hence said decision is not relevant in the present circumstances. 

The Tribunal observed that there was no reason with the appellants to have believed that appellants are not liable to pay tax of the commission received from M/s FSL on the products purchased by his sales group.  In the given circumstances, non-payment of service tax is rightly held to be an act of suppression to evade payment of duty.  

The bench  held that the extended period has rightly been invoked and upheld the order.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates