GST on performance-linked incentives to whole-time directors-employment vs independent service status test, assessments quashed and remanded.

The dominant issue was whether GST could be levied on performance-linked incentives paid to whole-time directors, which turned on whether the payments were for services in the course of employment or under a contract for service. The HC held that TDS deduction under Income Tax Act s.192 is a relevant indicator but not conclusive; the decisive test is the nature of the relationship and whether consideration was for employee services or independent services, and the impugned assessment failed to properly apply this test, resulting in the orders being quashed and the matter remanded. On alleged purchase suppression based on return discrepancies and non-availment of ITC, the HC found relevant aspects were not duly considered and remanded for fresh consideration with liberty to file additional documents.

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Issues involved:
The judgment involves challenging three separate assessment orders for financial years 2017-2018, 2018-2019, and 2019-2020 regarding the supply of Bulk Drugs and Pharmaceutical Intermediaries, suppression of purchases, payment of performance linked incentives to directors, and discrepancies relating to E-way bills.

Challenged Assessment Orders:
The petitioner, a registered person under GST laws, faced discrepancies after an audit of records, leading to challenges against assessment orders. The defects in the orders related to suppression of purchases, payment of performance linked incentives to directors, and discrepancies in E-way bills.

Defects in Assessment Orders:
The first defect concerned the suppression of purchases resulting in unclaimed Input Tax Credit (ITC). The principal issue was the liability of performance linked incentives paid to directors under GST. The third issue involved discrepancies in E-way bills.

Petitioner's Arguments:
The petitioner claimed that ITC was not availed due to ineligibility as per Section 17(5) of the TNGST Act. Regarding performance linked incentives to directors, it was argued that such payments were part of the contract of service and not liable to tax under GST, supported by Circular No.140/10/2020-GST.

Respondent's Counterarguments:
The respondent argued that the petitioner needed to provide all relevant documents to prove exemption from tax, as the demarcation of salary and incentives in certificates was not conclusive. The onus was on the petitioner to substantiate their claims.

Judicial Analysis:
The assessing officer considered balance sheets, Form-16, and Form-26AS to determine the tax liability on performance incentives paid to directors. The deduction of tax under Section 192 of the Income Tax Act was not conclusive, and the nature of services provided by the directors needed clarification.

Quashing of Orders:
The court found that relevant aspects were not considered in the impugned orders, and the petitioner might not have submitted all necessary documents. Consequently, the orders were quashed, and the matters were remanded for reconsideration by the assessing officer.

Remand and Directions:
The petitioner was granted the opportunity to submit additional documents within ten days for reassessment. The assessing officer was directed to consider all materials, provide a reasonable opportunity to the petitioner, and complete reassessment within four weeks.

Disposition:
The writ petitions were disposed of without costs, and connected Miscellaneous Petitions were closed, awaiting reassessment based on the additional documents to be submitted by the petitioner.

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