Directors' remuneration under Companies Act doesn't attract service tax as employer-employee relationship established

CESTAT Ahmedabad held that service tax under reverse charge mechanism was not applicable on remuneration paid to directors. The tribunal determined that directors, appointed through board resolution and treated as employees per income tax returns, maintained employer-employee relationship with the company. Following precedent from Bengal Beverages case, the tribunal concluded that whole-time directors are essentially company employees, and remuneration paid under Companies Act provisions constitutes employer-employee compensation. The impugned order was set aside and appeal allowed, establishing that director remuneration does not attract service tax liability.

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Issues involved:
The issue involved in the present case is whether service tax should be levied on the remuneration paid by the Appellant to its directors under reverse charge mechanism or not.

Details of the Judgment:

Issue 1: Interpretation of Company's Act
The Appellant's Advocate argued that the remuneration paid to the directors should not be categorized as a service for the levy of service tax as it is in the nature of salary. The advocate relied on Board resolutions, income tax returns, and CBEC Circular No. 115/9/2009 to support this argument. Several judgments were cited to establish that remuneration paid to directors is akin to salary and not a service subject to service tax.

Issue 2: Employer-Employee Relationship
The Tribunal examined the Board Resolution and income tax returns submitted by the Appellant and concluded that the directors have been appointed as employees of the company. It was noted that the issue had been previously deliberated upon and decided by the Tribunal under similar circumstances. The Tribunal cited relevant portions of judgments to support the decision that remuneration paid to whole-time directors is pursuant to an employer-employee relationship and not subject to service tax.

Conclusion
The Tribunal held that the remuneration paid to the directors of the Appellant company should not be subject to service tax as it is in the nature of salary and falls within the employer-employee relationship. Citing judicial discipline and previous decisions, the impugned order was set aside as without merit, and the appeal was allowed.

This summary provides a detailed overview of the judgment, highlighting the arguments presented by both parties and the Tribunal's decision on the issues involved.

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