2019 (4) TMI 2165 - AT - Service Tax

Directors' Pay Exempt from Service Tax: Tribunal Rules Employer-Employee Relationship in Favor of Appellant.

M/s Sanjeev Auto Parts Manufacturers Pvt. Ltd. Versus Commissioner of Central Excise, Aurangabad.

The Tribunal determined that the remuneration paid to whole-time directors by the appellant is not subject to service tax under the reverse charge ... Taxable service for levy of service tax - service tax under reverse charge mechanism in terms of Notification No. 30/2012-ST dated 20.06.2012 - remuneration paid to the whole time directors, who render services in the course of or in relation to their employment - HELD THAT:- The term “service” has been defined under Section 65B (44) of the Finance Act, 1994 to mean any activity carried out by a person for consideration, and includes a declared service. Certain services were excluded from the purview of such statutory provisions, which shall not be considered as taxable service for the purpose of levy and payment of service tax. On perusal of the case records, we find that the whole time directors were appointed by the appellant on payment of salary as remuneration and for that purpose, the appellant as the employer has issued Form No. 16 to the whole time directors, by deducting the tax at source. The income tax returns filed by the whole time directors also reflected the salary income earned from the employer. The appellant company has filed Form No. 32 before the Registrar of company, furnishing the particulars of the whole time directors. It is evident from the available records that the relationship exist between the appellant and its whole time directors is that of employer and employee and as per the exclusion clause provided in the definition of ‘service’, the activities undertaken by the whole time directors should not fall under the ambit or scope of taxable service for the purpose of payment of service tax. This Tribunal in the case of M/s Allied Blenders and Distillers Pvt. [2019 (1) TMI 433 - CESTAT MUMBAI] has allowed the appeal, holding that when the remuneration is paid to the Directors as salary for performing the day-to-day activities, there is no involvement of any taxable service for levy of service tax. The appeal was against an order passed by the Commissioner of Central Excise, Customs, and Service Tax, Aurangabad. The issue was whether remuneration paid to whole-time directors is liable to service tax under reverse charge mechanism. The Tribunal found that the relationship between the appellant and whole-time directors is that of employer and employee, and thus not taxable for service tax. The appeal was allowed in favor of the appellant.