Employer-employee relationship determines whether director remuneration falls outside service tax treatment under the Finance Act.

Service tax liability on remuneration paid to a company's Managing Director and whole-time Executive Director depends on whether the payments were true salary under an employer-employee relationship and therefore outside the definition of "service" in section 65B(44) of the Finance Act, 1994. Income-tax treatment alone was held insufficient to establish that relationship; the decisive factor was the contractual terms and conditions of appointment and employment. Because those employment documents were not produced, the issue could not be finally determined on the existing record and was sent back for fresh de novo adjudication after examining the employment terms and affording due opportunity to the parties.

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Issues: Whether service tax was chargeable on remuneration paid by a company to its Managing Director and whole-time Executive Director, and whether such remuneration was salary paid to employees falling outside the definition of "service" under section 65B(44) of the Finance Act, 1994.

Analysis: The remuneration had been shown in income-tax documents as salary, but that by itself was treated as insufficient to conclude the existence of an employer-employee relationship. The decisive factor was held to be the terms and conditions of appointment and employment of the directors, which were not produced in the proceedings. In the absence of those employment documents, the issue could not be finally resolved on the existing record and required reconsideration on the basis of the contractual employment terms as well as the income-tax position.

Conclusion: The matter was remanded for fresh de novo adjudication after examining the employment terms and after granting due opportunity to the parties.

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