Goods Sold at Rate Higher than MRP Does Not Establish Intention to Evade Service Tax: CESTAT [Read Order]

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) goods sold at rate higher than Maximum Retail Price (MRP) does not establish intention to evade service tax.

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The appellant, Harvinder Kaur Malhotra, is a private woman who works as an authorized distributor for AMWAY, marketing and selling its consumer goods. AMWAY paid the appellant under three different headings: Sales Commission, Leadership Development Commission, and Personal Performance Commission (PPC). The department found that the appellant was offering taxable services under the category of "Business Auxiliary Service" and related services without acquiring the necessary registration or paying service tax, based on an examination of third-party data, specifically Form 26AS.

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Following the conclusion of the investigations, the appellant received a Show Cause Notice, which proposed to recover Rs. 4,85,669 in service tax on the commission received from Amway between FY 2011–12 and FY 2015–16 under the proviso to Section 73(1) of the Finance Act, 1994, along with interest and a proposed penalty.

The demand, which extended the appellant's alleged total tax value benefit and ordered its recovery together with interest under Section 75, was confirmed. The appellant had previously deposited Rs. 1,08,353/-, which was taken away.

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Section 78 of the Finance Act of 1994 additionally established a penalty equivalent to the amount of service tax. Furthermore, sanctions were enforced in accordance with Sections 77(1)(a) and 77(2) of the Finance Act of 1994, respectively. The appellant filed an appeal with the Commissioner of Appeals, who denied relief in the appeal.

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The two member bench of Dr. Rachna Gupta (Judicial  Member) and Hemambika R. Priya (Technical Member) has observed that since the respondent-assessee is a person, it cannot be held against her if she believed she was merely a dealer; she has the option to choose between the purchase price and the sale price, or MRP, therefore it is impossible that there was a plan to avoid paying service tax.  Only because Amway referred to such a sum as "commission" and the appellant merely sold the items to the customer who requested a product at a specific MRP did the problem arise.

The appellant is penalized and the demand for the longer period is revoked.

To Read the full text of the Order CLICK HERE

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