Service Tax Paid before the Issuance of Show Cause Notice: CESTAT sets aside Penalty [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata, has recently in an appeal filed before it, held that when service tax with interest is already paid, no further proceeding   can be initiated or penalty can be imposed upon the assesse.

The aforesaid observation was made by the Tribunal when an appeal was preferred before it by the appellant M/s. Nurture Marketing Pvt. Ltd., as against the order of the Commissioner of CGST & CX (Appeal-I), Kolkata whereby he had allowed the appeal filed by the Department and imposed a penalty of Rs. 10,000/- under section 77, as well as a penalty of Rs.13,94,933/- under Section 78 of the Act.

The facts of the case being that the appellant was dealing with M/s. Amway India Enterprises Pvt. Ltd. and M/s. Britt Worldwide India Pvt. Ltd., it was issued a show cause notice dated 30 September 2011, by invoking the extended period of Limitation demanding Service Tax of Rs. 13,94,933/- for the period 2006-07 to 2010-11, under the category of “Business Auxiliary Service”, alleging that the amount has been received by the appellant as commission from Amway and Britt.

Thereafter vide Order-in-Original dt. 18 December 2012, the demand of Rs.13,65,840/- was confirmed and appropriated from the amount of Rs.17,60,562 already paid by the assesse, and an amount of Rs.4,43,790/- was also paid by the appellant towards the liability of interest even though, the amount of interest had not been calculated in the Adjudication Order.

The Adjudicating Authority having refrained from imposing any penalty by applying Section 80 of Finance Act 1994, the Department was in appeal before the First Appellate Authority, praying for the imposition of penalties upon the appellant. And the appeal of the Department being allowed and penalties being imposed , the appellant has now preferred the present appeal before the Tribunal.

The Advocate for the appellant submitting that the issue is no more res integra in view of the decision of the Tribunal in the case of Charanjeet Singh Khanuja V.S C.S.T., Indore/Lucknow/Jaipur/Ludhiana, it was  also submitted by him that during the relevant period, there were different views on whether commission received by an individual from Amway or Britt or any other such network marketing company, was liable to service Tax or not, and therefore that the extended period of limitation is not applicable in the present case.

With the Advocate for the assessee further contending that the commission received by the appellant was in two parts, one part being related to the goods received by the distributors which was subsequently sold, he added that in the said case of Charanjeet Singh Khanuja, it was held that no Service Tax is leviable on the said component.

“I further note that it was held in the said case of Charanjeet Singh Khanuja that the distributor is required to pay Service Tax on the Commission earned by it on the basis of volume of purchase of Amway products made by its sales group, that is, the group of Second level of Distributor appointed by Amway/Britt, who have been sponsored by the distributor” ,P. K. Choudhary, the Judicial member of the Tribunal noted, while the Authorized Representative for the Department  supported the impugned order.

Thus, allowing the assessee’s appeal he concluded:

“I find force in the submissions of the Ld. Advocate for the appellant and therefore hold that the proceedings should have been concluded before issuance of the show cause notice. I therefore set aside the penalties imposed and do not interfere with the Service Tax as confirmed in the Adjudication Order. Accordingly, the impugned order is set aside”.

To Read the full text of the Order CLICK HERE

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