By Puloma Dalal, Jayesh Gogri, Mandar Telang; Chartered Accountants
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Buying of branded goods at lower price by Distributors and selling at MRP and getting of commission on the bulk purchases is not considered as a service
Facts
The Appellants are distributors of Amway India Enterprises Pvt. Ltd who are engaged and are remunerated for acquiring goods from Amway at Distributor’s acquisition price and selling them at Retail Selling Price. Commission/ Bonus is provided by Amway depending on their monthly purchases. Commission is also paid on monthly purchases done by sub-distributors enrolled through the Appellants. The revenue confirmed demand of service tax on the commission income. It was contended that they are not engaged in promoting the sale of products and moreover the substantial portion of the commission is based on volume of purchases. Further till 30th April, 2004 definition of Business Auxiliary Service included the word “provided by Commercial Concern” and since they all are individuals they cannot be termed as a Commercial Concern.
Held
Business Auxiliary Service would include promotion of sale of goods which are produced or provided by or belonging to a third person. In the present case the goods are procured at Distributor’s acquisition price and subsequently sold at MRP which is a sale of goods and cannot be termed as any service provided. When the goods are purchased by the Distributors, they cease to be owned by Amway and the ownership transfers from Amway to the Distributors. Similarly, commission received by the Distributors for buying certain quantum of goods are in a nature of bulk discount and cannot be termed as promotion of sale of goods. However, the activity wherein Distributor appoints another distributor and gets remunerated based on the purchases made by the elected distributor comes within the definition of Business Auxiliary Service and is taxable. Further since branded goods are involved, the benefit of small scale exemption will be available. It was further noted that commercial concerns can be of a proprietary nature and therefore the appellants even though individuals can be considered as commercial concerns. It was also held that only on the reason that registration was not applied and returns were not filed, period of limitation cannot be invoked. Since there was an ambiguity amongst the department on the taxability of the service itself, longer period of limitation cannot be invoked.
