SERVICE TAX ON MEMBERS OF MULTI LEVEL MARKETING COMPANY.

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BRIGHT COMPUTERS (Querist)
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31 August 2009 SERVICE TAX QUERY:

I would like to know, if members of a company engaged in MLM, are covered under Service Tax. If covered, then under which service. The companies themselves are not registered under Service Tax, and are not charging S.Tax, but some of the members have got themselves registered under service tax, and are paying service tax from their pocket. What is the legal position? If a members has to get himself registered now, then what will be the position of earlier period, when he was not registered, and had not deducted & deposited S.Tax. Pls elaborate.
I would also like to know, whether service tax will be applicable on the value of actual purchases / sales made by him from the MLM company, or on the total value of commission received by the member from MLM company as shown in form no. 16A received by him from the company.

In one of the case, Service Tax Officials were of the view that S.Tax will be applicable on the value of the commission received by the assessee. In my opinion, it should not be on the value of the commission received because MLM member gets commission not only on his working, but on the work done by his downlines, and MLM member does not even know all his downlines, and the value of the business done by them. On what basis MLM member will deposit service tax? Moreover, it will also amount to multiple collection of service tax by the department, because if we look from top to bottom, the members lower in the ladder will be common for all the members up in the ladder.

In my opinion, in order to get away with the problem of multiple taxation of the same services, the individual purchase / sales of each member of the MLM should be the criteria, and if it is below the taxable limit, then there should be NO SERVICE TAX, and if it is above the limit, the member should get himself registered and pay service tax.

Your early reply in this connection alongwith with case law if any will be highly appreciated.

Thanks,

KUMAR (FCA) DELHI.
9818722221.