ST - Appellants are in receipt of commission for sales which are derived on basis of purchase made by distributors appointed by appellant and further down line - it cannot be denied that arrangement is nothing but multilevel marketing scheme - Demand correctly confirmed under BAS: CESTAT
By TIOL News Service
MUMBAI, SEP 06, 2015: THE appellants are distributors for M/s. RMP Infotech Pvt. Ltd. which is a binary network company having business model; that they enrol Direct Independent Distributors to promote the company's packages and canvas for enrolment of new members to create a chain of distributors who are as per agreement under compulsion to buy products from shopping section of M/s RMP every month; M/s RMP issues payment advice to each distributors indicating therein commission payable to the distributors.
It is the case of the Revenue that appellants are not independent traders but commission agents of M/s. RMP and hence they are liable to pay service tax on the amount of commission received.
Resultantly, demand notices seeking recovery of ST under the category of BAS were issued to all appellants and which demands were confirmed and these orders were upheld by the Commissioner(A).
All the appellants are before the CESTAT.
The appellants inter alia submitted that definition of Business Auxiliary Service is not covering the arrangement like the one which is in this case and it was only by the Union Budget 2010-11 that the services were brought into service tax; that the business transactions between appellants and M/s RMP are in respect of purchase of goods for further sale which cannot be covered under the category of business auxiliary services.
The AR submitted that the agreement clearly enforces the condition that appellants are required to purchase goods every month worth of Rs.10,000/-; that the distributors appointed by the appellants and further distribution by those distributors have to purchase goods from M/s RMP worth of Rs.10,000/- for which commission is paid. Inasmuch as the issue is squarely covered by the decision in the case of Shri Surendra Singh Rathore and Smt. Chanda Bohra - 2013-TIOL-1582-CESTAT-DEL.
The Bench inter alia observed -
+ Appellants claim that this is not multilevel marketing scheme or binary is totally incorrect; on reading the agreement between appellants and M/s RMP in this case it indicates that the appellants are required to appoint only two distributors they are suppose to increase these two to further appoint of 2 distributors and by such sub-distributors (if they could be called so). The appellants and the chain of distributors appointed by them are under compulsion to purchase other goods worth Rs.10,000/- from M/s. RMP. Appellants herein are getting paid an amount as commission from goods which were purchased by the distributors and sub-distributors appointed by the appellant distributors.
+ On this factual matrix we find that there cannot be any dispute that the appellants are in receipt of commission/facilitation for the sales which were derived on the basis of purchase made by the distributors appointed by the appellant and further down line. Though it is a fact that there is a cap for payment to the appellant as a distributor, it cannot be denied that the arrangement is nothing but multilevel marketing scheme. At this juncture we have to hold that the issue involved in this case is now squarely covered by the Judgement of this Tribunal in the case of Shri Surendra Singh Rathore and Smt. Chandra Bohra (supra).
Holding that there is no reason to deviate from such a view taken by the Tribunal, the order of the lower appellate authority was upheld and the appeals were rejected.
(See 2015-TIOL-1875-CESTAT-MUM)
