The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has upheld a service tax demand of ₹2.78 lakh against a distributor receiving commission under a multi-level marketing arrangement, holding that the payments represented consideration for marketing and promoting the company’s products.

The bench of Dr. Rachna Gupta, Officiating President, and P.V. Subba Rao, Member (Technical) found that the dispute was covered by earlier decisions involving identical facts, including a decision in the distributor’s own cases. The appellate order confirming the demand, interest and penalties was consequently upheld. 

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The appellant was a distributor of Fashion Suitings Private Limited, Bhilwara, which marketed various goods through a dedicated network of distributors.

Under the arrangement described in the order, a person entered the network by purchasing products of a specified minimum value, referred to as a “kit purchase”. The person was then assigned a unique distributor number and could make subsequent purchases, known as “repurchases”.

The distributor was required to sponsor two further applicants, who joined the network through the same process. These new distributors formed the downline, and the chain continued as additional participants joined. The tribunal recorded that this arrangement promoted the company’s business and facilitated the marketing of its goods, with commission paid along the distributor network.

The department classified the appellant’s activities as Business Auxiliary Service.

Based on information supplied by the company through letters dated December 2, 2014, and May 6, 2015, the department found that the appellant had received commission of ₹22,51,320 between January 2014 and March 2015, without discharging service tax on that amount.

A show cause notice dated June 23, 2015, proposed recovery of ₹2,78,264 in service tax, together with interest at the applicable rates and proportionate penalties.

The demand was confirmed through an Order-in-Original dated April 15, 2021. The Commissioner (Appeals), Jodhpur, subsequently rejected the appellant’s challenge through an order dated March 31, 2022, leading to the appeal before CESTAT.

At the hearing, the appellant’s request for an adjournment was declined for reasons recorded in the tribunal’s daily order. No representative appeared for the appellant, while authorised representative S.R. Meena presented the department’s case.

The department relied on a common final order dated May 13, 2025, passed in seven appeals, four of which concerned the present appellant. It submitted that the facts were identical and that the issue had already been decided in the department’s favour.

After examining the records, grounds of appeal and earlier final order, the tribunal agreed that the factual circumstances were identical.

It referred to Surendra Singh Rathore v. Commissioner of Central Excise, Jaipur-I, reported in 2014 (34) S.T.R. 147 (Tri.-Del.), and Charanjeet Singh Khanuja v. Commissioner of Service Tax, reported in 2016 (41) S.T.R. 313 (Tri.-Del.).

The ruling in Surendra Singh Rathore, reproduced in the present order, treated commission received under the company’s multi-level marketing plan as consideration for marketing and promotional efforts. Such activities constituted Business Auxiliary Service under Section 65(19) of the Finance Act, 1994.

The tribunal also relied on the factual findings in its May 2025 order concerning the nature of the payments.

That order recorded that the appellants had not produced documents establishing a separate component of the receipts attributable to other categories. When asked to quantify the amounts, the company had reported the distributor’s profit margin as nil and commission for sale or personal consumption as nil. The entire amount confirmed in those appeals was reflected as commission linked to the distributor’s performance.

CESTAT found that the same factual position applied to the present appeal. Accordingly, it saw no reason to depart from the findings already reached in the appellant’s own cases.

The tribunal upheld the Commissioner (Appeals)’ order and dismissed the appeal.

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