2024 (1) TMI 935 - AT - Service Tax

Director remuneration not subject to service tax under reverse charge mechanism as directors are employees

CESTAT Ahmedabad allowed the appeal regarding service tax liability on director remuneration under reverse charge mechanism. The Tribunal relied on ... Levy of service tax - remuneration paid by the appellant to directors should be charged to service tax on the reverse charge basis or not - HELD THAT:- The matter is no longer res-integra as the same has already been decided by this Tribunal. The Kolkata Bench of this Tribunal, in the case of M/S BENGAL BEVERAGES PVT. LTD. VERSUS CGST & EXCISE, HOWRAH [2020 (11) TMI 622 - CESTAT KOLKATA] has held when the very provisions of the Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences, it leads to the conclusion that those directors are employees of the assessee company. The impugned order-in-original is without any merit - appeal allowed. Issues Involved:1. Whether the remuneration paid by the appellant to directors should be charged to service tax on the reverse charge basis.Summary:Issue 1: Interpretation of Remuneration as Salary or Service:The appellant contended that the remuneration paid to its Directors is a salary, establishing a clear employer-employee relationship. The Directors declare their remuneration under the Income Tax Act, 1961 as 'Salaries,' and TDS on such salaries has been duly deducted and deposited with the Income Tax department. The appellant relied on previous judgments, including Allied Blenders and Distillers Pvt. Limited vs. CCE & ST, Aurangabad and Rent Works India Pvt. Limited vs. CCE, Mumbai, which held that remuneration paid to Directors is salary.Issue 2: Department's Interpretation:The department interpreted the remuneration paid to Directors as liable to service tax, despite it being declared as salary income in Form-16. The department's stance was that the remuneration is not a salary but directors' remuneration, thus subject to service tax under reverse charge basis. The Tribunal noted the absence of appointment orders containing terms and conditions of employment for the directors, which could ascertain their status as employees.Issue 3: Tribunal's Decision and High Court's Directions:The Tribunal initially remanded the matter to the adjudicating authority for reconsideration, taking into account the terms and conditions of employment and the status of the identical issue pending before the Supreme Court. The appellant approached the Gujarat High Court, which directed the Tribunal to decide the matter on merits without waiting for the Supreme Court's decision.Issue 4: Precedents and Judicial Discipline:The Tribunal referred to the Kolkata Bench's decision in Bengal Beverages Pvt. Limited vs. CGST & Excise, Howrah, which held that whole-time directors are employees of the company, and remuneration paid to them is pursuant to an employer-employee relationship. Similarly, the Mumbai Bench in Allied Blenders and Distillers Pvt. Limited vs. CCE & ST, Aurangabad held that remuneration paid to whole-time directors is not a service but a salary, thus not liable to service tax under reverse charge basis.Final Decision:Following the judicial discipline, the Tribunal concluded that the remuneration paid to the Directors by the appellant is not chargeable to service tax under reverse charge basis. The impugned order-in-original was found to be without merit, and the appeals were allowed.(Pronounced in the open court on)