2020 (4) TMI 228 - AAR - GST

Directors' salaries subject to GST under Reverse Charge Mechanism (RCM) per Notification No. 13/2017-Central Tax

In Re: M/s. Clay Craft India Pvt. Ltd.,

In Re: M/s. Clay Craft India Pvt. Ltd., - [2020] 76 G S.T.R. 302 (AAR), 2020 (35) G.S.T.L. 580 (A. A. R. - GST - Raj.) Issues Involved:1. Whether GST is payable under Reverse Charge Mechanism (RCM) on the salary paid to Directors of the company.2. Whether the situation changes if the Director is also a part-time Director in another company.Issue-wise Detailed Analysis:1. GST on Salary Paid to Directors under RCM:The applicant, a registered entity engaged in the manufacture of various items, sought clarification on whether the salary paid to its Directors, who also perform managerial roles within the company, is subject to GST under the Reverse Charge Mechanism (RCM). The applicant argued that these Directors, treated as employees, should not attract GST on their salaries as per the provisions of the GST Act, 2017. The applicant cited various legal definitions and precedents to support their stance that Directors working as full-time employees should be excluded from GST under Schedule III of the CGST Act, 2017, which exempts services by an employee to the employer in the course of employment.The jurisdictional officer, however, contended that the services provided by the Directors are not covered under clause (1) of Schedule III to the CGST Act, 2017, as the Directors are not employees of the company. The officer emphasized that the consideration paid to Directors is for services rendered to the company, making the company the recipient and the Directors the suppliers of such services. Consequently, these services fall under Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017, which mandates GST payment on a reverse charge basis for services supplied by a Director to the company.The ruling concluded that the consideration paid to Directors, whether termed as salary or otherwise, is liable to GST under RCM as per Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017. The Directors are not considered employees under the CGST Act, 2017, and thus the services they provide to the company are taxable under RCM.2. GST on Salary if Director is a Part-time Director in Another Company:The second issue addressed whether the GST liability under RCM would change if the Director is also a part-time Director in another company. The ruling clarified that the situation remains the same regardless of the Director's part-time association with another company. The consideration paid to the Directors by the applicant company will continue to attract GST under RCM as per entry No. 6 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017. The Directors, in this context, are still not considered employees of the company, and their services are taxable under RCM.Conclusion:The ruling unequivocally stated that the consideration paid to Directors by the applicant company, whether as salary or otherwise, is subject to GST under the Reverse Charge Mechanism. This applies even if the Director holds a part-time position in another company. The relevant legal provisions and notifications under the CGST Act, 2017, were cited to support this conclusion. The applicant's references to other legal definitions and precedents were deemed irrelevant in the context of the existing CGST law.