CESTAT Rules, Selling Goods At Higher MRP Does Not Establish Intention To Evade Service Tax
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that selling goods at a higher Maximum Retail Price (MRP) by itself does not establish any intention to evade payment of service tax. The Tribunal modified the impugned order and set aside the demand for the extended period along with the associated penalties, while upholding the demand for the normal period, if any. The decision was rendered by a bench comprising Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member), in an appeal filed by Harvinder Kaur Malhotra, an individual engaged in marketing and selling AMWAY consumer products as an authorized distributor.
The appellant had received income under three heads: Personal Performance Commission (PPC), Sales Commission, and Leadership Development Commission. Based on third-party data, particularly Form 26AS, the department concluded that the appellant had been providing taxable services under the category of “Business Auxiliary Service” without registration and without payment of service tax.
A Show Cause Notice was issued demanding service tax of Rs. 4,85,669/- for the financial years 2011–12 to 2015–16 under Section 73(1) of the Finance Act, 1994. The demand was confirmed by the Adjudicating Authority, who extended the benefit of cum-tax value and appropriated Rs. 1,08,353/- already deposited. Penalties were imposed under Sections 77 and 78 of the Finance Act, 1994.
In the first appeal, the Commissioner (Appeals) denied relief and rejected the cum-tax benefit on the ground that the appellant failed to produce evidence that the sale value was inclusive of service tax. The penalties were also upheld, holding that the appellant had deliberately defaulted in compliance.
Aggrieved by this, the appellant approached the Tribunal. It was argued that there was no intent to evade service tax, and that the extended period of limitation could not be invoked as the issue involved interpretation of law. The Tribunal found merit in this argument, noting that the appellant, being an individual distributor, could reasonably have believed that she was simply engaged in buying and selling goods. The issue only arose because Amway classified the margin as "commission", whereas the appellant perceived it as the difference between purchase price and MRP.
The Tribunal referred to the decision in Charanjeet Singh Khanuja v. Commissioner of Central Excise and Service Tax, Indore [2015 (6) TMI 585 - CESTAT NEW DELHI], wherein it was held that the act of selling goods purchased from Amway does not amount to rendering any service to Amway. The profit earned on such sales, or the commission received on purchases made by the distributor herself, was considered not liable to service tax. Only those commissions linked to purchases made by a distributor's sales group were found taxable under the head of Business Auxiliary Services.
Applying this rationale, the Tribunal observed that the demand made in the present case did not clearly segregate the commission earned through the appellant’s own purchases and those earned through her group’s purchases. Hence, a blanket demand for the extended period could not be justified.
Furthermore, relying on the Supreme Court’s decision in Continental Foundation Joint Venture v. CCE, Chandigarh [2007 (216) E.L.T. 177 (S.C.)], the Tribunal reiterated that when there exists a reasonable doubt in the assessee’s mind about the taxability of an activity, the extended limitation period under Section 73(1) cannot be invoked. Accordingly, the Tribunal held that the appellant had no intention to evade tax, and the extended period of limitation along with the penalties imposed under Section 78 deserved to be set aside.
The Tribunal also ruled in favour of the appellant on the issue of cum-duty benefit. Relying on the Supreme Court’s decision in Maruti Udyog Ltd. [2002 (141) ELT 3 (SC)], the Tribunal held that when tax is not separately charged and collected, the value must be treated as inclusive of tax. Since there was no evidence that the appellant had collected tax from her customers, the Tribunal directed the department to recompute the tax liability treating the receipts as cum-tax.
Ultimately, the Tribunal modified the impugned order by setting aside the demand for the extended period and the penalties imposed, while upholding the service tax liability only for the normal period, if applicable. The appeal was accordingly allowed in part.
Appearance
Shri Ajay K. Mishra, Advocate for the Appellant
Shri Rajeev Kapoor, Authorized Representative for the Respondent
Cause Title: Harvinder Kaur Malhotra V. Commissioner of Central GST & Central Excise, Jodhpur
Case No: Service Tax Appeal No. 50731 Of 2019
Coram: Hon’ble Dr. Rachna Gupta [Member (Judicial)], Hon’ble Ms. Hemambika R. Priya [Member (Technical)]
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