Multi-Level Marketing Activities Linked To Sale-Purchase Of Goods Can’t Be Taxable Under BAS: CESTAT

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand raised against an individual engaged in multi-level marketing activities for K-Link Healthcare India Pvt. Ltd., holding that the activities primarily involved sale and purchase of goods and could not be treated as taxable “Business Auxiliary Service”. The bench of R. Muralidhar (Judicial Member) sale of business kits through a multi-level marketing structure amounted to sale of goods and not provision of taxable service. The Tribunal reproduced the earlier findings stating that such transactions primarily involved trading activity and did not constitute “Business Support Services for Business or Commerce”. The appeal was filed by Mustafa Ali against an Order-in-Appeal passed by the Commissioner (Appeals), CGST & Central Excise, Kolkata, which had upheld the confirmation of service tax demand for the period 2015-16 to 2017-18. The Tribunal’s decision was delivered by Judicial Member Shri R. Muralidhar on 11 May 2026. According to the department, the appellant had earned commissions by introducing persons to K-Link Healthcare India Pvt. Ltd. and such receipts reflected in Form 26AS constituted consideration for providing “Business Auxiliary Service”. Based on income tax records and data available from the CBDT, a show cause notice dated 20 October 2021 was issued alleging non-payment of service tax. Before the Tribunal, the appellant argued that the business model involved purchasing products from K-Link and thereafter introducing other persons to the company through sale of such products. It was submitted that the activity essentially involved trading of goods rather than provision of any service. The appellant also challenged the quantification of the demand, contending that the department had arbitrarily inflated taxable turnover figures without any statutory basis. The counsel pointed out that for the financial year 2016-17, the department had simply doubled the taxable value of the previous year while computing the alleged service tax liability. The actual figures reflected in Form 26AS were substantially lower than the amounts adopted in the show cause notice. The Tribunal accepted this contention and observed that the Revenue had arbitrarily enhanced the taxable value without authority of law. It noted that while the department demanded service tax of over Rs. 10.45 lakh, the figures available from Form 26AS reflected substantially lower values, and even on the department’s own assumptions, the correct demand would have been around Rs. 5.65 lakh. On the issue of limitation, the Tribunal observed that the show cause notice had been issued after more than four years and was based entirely on income tax data such as Form 26AS and Income Tax Returns. It held that extended limitation could not be invoked merely on the basis of third-party data in the absence of any evidence of suppression or wilful misstatement. The Bench extensively referred to earlier decisions including Tabassum Enterprises, Rishu Enterprise, Quest Engineers & Consultant Pvt. Ltd., Indian Machine Tools Manufacturers Association, and Forward Resources Pvt. Ltd., which consistently held that Form 26AS by itself cannot establish service tax liability unless supported by corroborative evidence showing actual rendition of taxable services. The Tribunal reiterated that income tax records and TDS statements maintained under the Income-tax Act operate in a different statutory field and cannot automatically determine liability under the Finance Act, 1994. It emphasized that for levy of service tax, the department must establish the existence of service provider, service recipient, nature of taxable service, and consideration for such service. Referring to its own earlier ruling in Imam Hussain Devan v. Commissioner, CGST & Central Excise, Bolpur, the Bench held that similar demands raised solely on the basis of CBDT data without independent verification were unsustainable both on merits and limitation. Accordingly, the Tribunal set aside the impugned order and allowed the appeal with consequential relief to the appellant as per law. Case Details Case Title: Mustafa Ali Versus Commissioner, CGST & CX, Howrah Commissionerate Citation: JURISHOUR-1211-HC-2026(Ker) Case No.: Service Tax Appeal No.76228 of 2024 Date: 11.05.2026 Counsel For Appellant: Tarun Chatterjee, Shri Jayanta Roy & Ms. Sneha Das Counsel For Respondent: P.Das, Authorized Representative Click Here To Read Order Read More: No Cenvat Credit Reversal On Input Services Used For Captive Power Plant As Electricity Is Not ‘Exempted Goods’: CESTAT

Multi-Level Marketing Activities Linked To Sale-Purchase Of Goods Can’t Be Taxable Under BAS: CESTAT

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