Service tax on mlm business

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MOHAN (Querist)
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10 November 2012 I am a customer of one company[ formerly known as gold
> quest i pvt ltd now Quest netI Enterprises ]and i had
> reffered two customers to the company by mouth publicity.
> company is paying me refferal income according to some
> formula
> which has no relation to amount of product sale.They have
> point system and for every product sale there are points and
> whereever there are 3 and 3 points at both wing that is
> right and left we get 11500 rupees.for example company
> send cheques this way.
>
> Leftcustmer right custmer Rupees
> group group
> 3 3 11500
>
> 2 2 nil
>
>
> 3 300 11500
>
> 2 300 nil
>
> 3 1000 11500
>
> 2 800 nil
>
l
> 6 6 23000
>
> 1 400 nil
>
> 9 9 34500
>
0
> 9 2 nil
>
l
> 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 these 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 .
> 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
> referrence .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 2002 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 summons 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 service 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

Amol S Joglekar

Amol S Joglekar (Expert)
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11 November 2012 01. When you say that you are a customer of XXXXXX company.... What sort of / type of contract / agreement had been entered between you and the said XXXXXX company shall throw light on the nature of this LEFT/ RIGHT payment. You need to share this agreement / contrat with the experts.
02. Service can be rendered ONCE and the fruits can peep in perpetually. Point of service may not be concluding test for payment of service.
03. Prima facie, the contention of service tax is correct.
04. Your case first time went above the service tax in the year 2006-07. Till 2005-06 no service tax was payable.

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