SERVICE TAX ON MEMBERS OF MULTI LEVEL MARKETING COMPANY.
This query is : Resolved
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.
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.
31 August 2009
Can you plz make it short !!
19 December 2009
This is a Writ, please make if brief and precise, to get quick answers.
Break in 10 questions, that will make sence
Break in 10 questions, that will make sence
24 July 2025
Great question about Service Tax on MLM (Multi-Level Marketing) members! Here’s a detailed explanation addressing your concerns:
---
### 1. **Are MLM members liable to pay Service Tax?**
* Service tax is levied on *services provided*, not on *income earned* or *commission received* as such.
* In the case of MLM members, the key is **what service are they providing?**
Typically, MLM members act as **independent distributors or agents**, promoting and selling products and recruiting downline members. The services could be:
* **Advertising and marketing services**,
* **Referral or recruiting services**,
* Or simply **sale of goods** (which is not a service, so no service tax).
---
### 2. **Which service category applies?**
* If MLM members are providing *marketing or advertising* services to the MLM company or to others, then the service tax could be applicable under:
* **“Advertising Agency Services”** or
* **“Business Support Services”** or
* Any other relevant service category depending on the nature of the activity.
* However, if the MLM member is merely **selling goods** on commission basis (like a distributor), the transaction is a **sale of goods** and **not a service**, so service tax is *not* applicable on sale or commission.
---
### 3. **On what value is Service Tax payable?**
* Service tax is charged on the **value of taxable services rendered**.
* If service tax applies on the services performed by the MLM member (such as advertising or marketing), then service tax is payable on the **gross amount charged or commission received** for those services.
* But, service tax is **not applicable on the commission on sales of goods** because sales are outside the ambit of service tax.
---
### 4. **What about multiple levels and downline commissions?**
* Your concern about multiple taxation on the commission from downlines is valid.
* Service tax is based on **services provided** by the member.
* If a member receives commission from downlines for services rendered by those downlines, the member **is not providing those services**, so tax cannot be levied on commission from downlines.
* Therefore, **service tax should not be charged on the total commission from downlines** — only on services actually provided by the member himself.
---
### 5. **Regarding registration and back-period liability**
* If a member is **providing taxable services** and crosses the service tax threshold (Rs. 10 lakh per annum as per earlier rules), then **he should get registered and pay service tax**.
* For earlier periods when the member was not registered and did not pay service tax, **penalties and interest can be levied** if the department initiates action.
* However, if the member’s activities are not taxable services, no liability arises.
---
### 6. **Legal position & clarifications**
* There is **no specific case law solely on MLM members and service tax**, but general principles of service tax apply.
* Many tax experts opine that **commission income from mere sale of goods is not taxable service**.
* Only if the MLM member provides a separate service (marketing, advertisement, recruitment) for commission, then service tax applies on that service income.
---
### **Summary**
| Issue | Position |
| ---------------------------------------------- | -------------------------------------------------------------- |
| Is sale of goods commission taxable? | No, it is not a service, so no service tax. |
| Is commission on downline income taxable? | No, only services actually rendered by the member are taxable. |
| Should MLM members register under service tax? | Only if they provide taxable services and exceed threshold. |
| What value for service tax? | On value of taxable services rendered by the member only. |
---
If you want, I can help draft a formal note or find relevant circulars or notifications related to this. Would you like that?
---
### 1. **Are MLM members liable to pay Service Tax?**
* Service tax is levied on *services provided*, not on *income earned* or *commission received* as such.
* In the case of MLM members, the key is **what service are they providing?**
Typically, MLM members act as **independent distributors or agents**, promoting and selling products and recruiting downline members. The services could be:
* **Advertising and marketing services**,
* **Referral or recruiting services**,
* Or simply **sale of goods** (which is not a service, so no service tax).
---
### 2. **Which service category applies?**
* If MLM members are providing *marketing or advertising* services to the MLM company or to others, then the service tax could be applicable under:
* **“Advertising Agency Services”** or
* **“Business Support Services”** or
* Any other relevant service category depending on the nature of the activity.
* However, if the MLM member is merely **selling goods** on commission basis (like a distributor), the transaction is a **sale of goods** and **not a service**, so service tax is *not* applicable on sale or commission.
---
### 3. **On what value is Service Tax payable?**
* Service tax is charged on the **value of taxable services rendered**.
* If service tax applies on the services performed by the MLM member (such as advertising or marketing), then service tax is payable on the **gross amount charged or commission received** for those services.
* But, service tax is **not applicable on the commission on sales of goods** because sales are outside the ambit of service tax.
---
### 4. **What about multiple levels and downline commissions?**
* Your concern about multiple taxation on the commission from downlines is valid.
* Service tax is based on **services provided** by the member.
* If a member receives commission from downlines for services rendered by those downlines, the member **is not providing those services**, so tax cannot be levied on commission from downlines.
* Therefore, **service tax should not be charged on the total commission from downlines** — only on services actually provided by the member himself.
---
### 5. **Regarding registration and back-period liability**
* If a member is **providing taxable services** and crosses the service tax threshold (Rs. 10 lakh per annum as per earlier rules), then **he should get registered and pay service tax**.
* For earlier periods when the member was not registered and did not pay service tax, **penalties and interest can be levied** if the department initiates action.
* However, if the member’s activities are not taxable services, no liability arises.
---
### 6. **Legal position & clarifications**
* There is **no specific case law solely on MLM members and service tax**, but general principles of service tax apply.
* Many tax experts opine that **commission income from mere sale of goods is not taxable service**.
* Only if the MLM member provides a separate service (marketing, advertisement, recruitment) for commission, then service tax applies on that service income.
---
### **Summary**
| Issue | Position |
| ---------------------------------------------- | -------------------------------------------------------------- |
| Is sale of goods commission taxable? | No, it is not a service, so no service tax. |
| Is commission on downline income taxable? | No, only services actually rendered by the member are taxable. |
| Should MLM members register under service tax? | Only if they provide taxable services and exceed threshold. |
| What value for service tax? | On value of taxable services rendered by the member only. |
---
If you want, I can help draft a formal note or find relevant circulars or notifications related to this. Would you like that?
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