SCN Lacks Precise BAS Classification: CESTAT Sets aside Service Tax Demand against Amway Distributor [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the service tax demand against an Amway distributor since the Show Cause Notice (SCN) lacked clarity and reliance on undisclosed Amway website material without giving opportunity to explain under the Business Auxiliary Services (BAS) Provisions.

The Appellant, P.C. Pondian, an individual engaged in the distribution of products of Amway India Enterprises Limited, was subjected to a demand for service tax by the Department, was aggrieved by the impugned Order in Appeal No. MAD-CEX-000-APP-067-15 dated 01.12.2015 passed by the Commissioner of Service Tax (Appeals-I), Madurai. The order in original no. MAD-CEX-000-COM-JTC-38-14 dated 22-12-2014 of the adjudicating authority was upheld after rejecting the Appellant’s Appeal.

The Department stated that the appellant's activities of promoting sales/marketing Amway products and earning commission constituted 'Business Auxiliary Service'. A Show Cause Notice No. 63/2013-ST dated 23-10-2013 was issued, proposing a demand of service tax amounting to Rs. 6,72,498/- along with applicable interest and penalties under Sections 78(1), 77(1)(a), and 77(2) of the Finance Act, 1994, for the period from 2008-09 onwards.

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This demand was confirmed by the adjudicating authority vide Order-in-Original No. MAD-CEX-000-COM-JTC-38-14 dated 22-12-2014, and subsequently upheld by the Commissioner of Service Tax (Appeals-I), Madurai, through Order-in-Appeal No. MAD-CEX-000-APP-067-15 dated 01.12.2015. Aggrieved by these orders, the appellant preferred an appeal before the Customs, Excise and Service Tax Appellate Tribunal.

The Counsel for the Appellant, M.N. Bharati, argued that the appellant conducted sales activity as an independent Amway vendor, not service provision. The SCN lacked specificity on service classification and improperly included amounts without inquiry. The Appellate Authority relied on undisclosed website material not mentioned in the SCN, rendering the order invalid.

Further, the Counsel argued that the demand was time-barred as no suppression or intent to evade duty was proven, with the appellant acting on bona fide belief of conducting sales activity. The Tribunal relied on United Telecoms Ltd versus CST Hyderabad, 2011 (22) STR 571 (Tri-Bang), Balaji Enterprises versus Commissioner of Central Exercise & ST, Jaipur, 2020 (33) GSTL 97 (Tri-Bang), and Charanjit Singh Khanuja Vs CST Indore/ Lucknow/ Jaipur/ Ludhiana,2016(41) STR 213 (Del) which stated that extended limitation cannot apply to Amway distributors in similar circumstances.

On the other hand, the Counsel for the Respondent, N. Satyanarayana, reiterated the findings in the impugned order on appeal.

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The Bench of Customs, Excise and Service Tax Appellate Tribunal consisting of Judicial Member, Ajayan T.V and Technical Member, M. Ajit Kumar, heard and reviewed the matter.

The Tribunal, after considering the material on record, held that the SCN failed to specify the relevant sub-clause of Business Auxiliary Service, violating natural justice. The Appellate Authority impermissibly relied on material from Amway's website not disclosed to the appellant or mentioned in the SCN, vitiating the order.

Further, the tribunal followed precedents in United Telecoms and Balaji Enterprises, and ruled that without specifying the precise service provision, the demand cannot be sustained. Relying on Charanjit Singh Khanuja, the Tribunal held that Amway distributors purchasing and reselling products conduct sales activity, not service provision, as goods belong to the distributor after purchase. The extended limitation period was wrongly invoked as the SCN failed to prove suppression or wilful misstatement with intent to evade duty, especially when departmental views on taxability differed.

Thus, the impugned order was set aside and the appeal was allowed with consequential relief. The order was pronounced in open court on 11.11.2025.

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