EXPERT OPINION NEEDED

This query is : Resolved

MOHAN JOSHI (Querist)
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15 July 2009 i am a customer of one company and i had reffered some customers to the company by mouth publicity. company is paying me refferal incomee according to some formula
which has no relation to amount of prduct slae.They have point system and for every produc sale there are points and whereever there are 3 and 3 points at both wing we get 11500 rupees.for example copany send cheques this way.

Leftcustmer right custmer
group group rupees
3 3 11500
2 2 nil
3 300 11500
2 300 nil
3 1000 11500
2 800 nil
6 6 23500
1 400 nil
9 9 34500
9 2 nil
Can this income be termed as commission.if not what should be a proper word to descibe this type of income.
I am a customer of the cumpany and i recomended only 2 customers once in life time .then thes two brought 2 each in their turn.the process went on and today I have 2 direct and around 7000
indirct custmers in my chain can I be called commission agent here i make it clear that i am not involved in transactions of 7000 persons.

i need expert opinion as service tax department has asked us to register under service tax and pay service tax from 2004 to 2009 .
does such type of income comes under service tax.my first 2 refferences were in the year 2002 .

Rajesh Kumar

Rajesh Kumar (Expert)
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19 July 2009 The transaction you are referring to is network marketing transaction. On the face of it it is a marketing service and you are required to pay ST, off course exemption for Small scale service provider is there.
I dont know what is your turnover, but your issue is slightly different. You want to say that you just referred the company to two person, and apart from that you have done nothing.
If the liability is high, enagage a good professional to study your case and defend. The issue of network marketing has not been decided till date.

MOHAN JOSHI

MOHAN JOSHI (Querist)
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20 July 2009 I joined gold quest by purchasing a single coin in liftime i e on 30/11/2001 and given two referrals one in dec 2001 and other in jan 2002 .this two persons were joined with my reference .my work ended on jan 2002 however i received income continusly .
2004-05 2,68,500
2005-06 1,26,500
2006-07 11,50,000
2007-08 20,70,000
2008 -09 2,53,000

here i may once again add that i have done nothing after jan 2001 i stoped ref persons, even then the chain went on and i got income without my effort continuosly
year by year.now i have receved suimmons from service tax and they are asking me to pay around a half million .
I stronly belive that As I have not rendered any service after 2001 i am not liable for tax as for as 2004 to 2009 is concerned. I am ready to pay tax for 2001 -2002

I need expert opinion on the subject

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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24 July 2024 It seems like you're involved in a referral or network marketing scheme where you receive income based on the referrals made and their subsequent activities. Let's address your queries step by step:

### Nature of Income
1. **Commission vs. Other Income**:
- The income you're receiving based on the points system for referrals does not fit the traditional definition of commission because it's not directly tied to the amount of product sales. Instead, it appears to be structured based on a referral or network-based incentive system.
- A more appropriate term for this type of income could be "referral income" or "incentive income". It's important to accurately describe the nature of this income when dealing with tax authorities.

2. **Tax Implications**:
- The Service Tax Department has asked you to register and pay service tax for the period from 2004 to 2009. Service tax (now GST) typically applies to services rendered, and whether your referral activities constitute a taxable service under the relevant laws needs careful consideration.
- Since you stopped actively referring customers after 2001 and claim to have had no involvement in the transactions of the subsequent 7000 persons, the key question is whether your initial referrals constitute a taxable service under the Service Tax (now GST) Act.
- Given that you have not actively provided any service after January 2002, it may be argued that your income from referrals post-2001 should not attract service tax.

### Expert Opinion and Action Steps
1. **Consultation with a Tax Professional**:
- It's crucial to seek advice from a qualified tax consultant or chartered accountant who specializes in GST (formerly Service Tax) and direct taxation laws in your jurisdiction.
- They can review the specifics of your case, including the nature of the income, the structure of the referral scheme, and the timelines involved, to provide a clear opinion on your tax liability.

2. **Response to Service Tax Department**:
- Respond to the summons from the Service Tax Department promptly and professionally. Provide them with a detailed explanation of how the income was earned, the cessation of your active involvement, and any documentation supporting your claims.
- Present your case based on expert advice to argue that your income after 2001 should not be subject to service tax, emphasizing that no services were rendered post-January 2002.

3. **Legal and Regulatory Considerations**:
- If necessary, consider seeking legal counsel to represent you in discussions with the Service Tax Department or in any appeals process if you believe you're wrongly assessed.
- Ensure compliance with all statutory requirements while asserting your position based on the facts and expert opinion gathered.

By consulting with professionals and presenting a clear case based on the facts and expert guidance, you can effectively address the Service Tax Department's queries and assert your position regarding the taxability of your income. This approach will help clarify the nature of your income and ensure compliance with tax regulations.