2024 (6) TMI 1331 - AT - Service Tax

VCMD remuneration creates employer-employee relationship, exempt from service tax under Section 65B(44) Finance Act 1944

Amara Raja Batteries Ltd Versus Commissioner of Central Tax Tirupati - GST

Amara Raja Batteries Ltd Versus Commissioner of Central Tax Tirupati - GST - 2024 (390) E.L.T. 361 (Tri. - Hyd.) Issues Involved1. Whether the Vice-Chairman cum Managing Director (VCMD) is an employee of the Appellant.2. Whether the remuneration paid to the VCMD is liable to Service Tax under the Reverse Charge Mechanism.Issue-wise Detailed Analysis1. Whether the Vice-Chairman cum Managing Director (VCMD) is an employee of the Appellant:The Department alleged that the Appellant did not pay Service Tax on the remunerations paid to their VCMD, Mr. Jayadev Galla, under the Reverse Charge Mechanism. The core issue was whether Mr. Galla was an employee of the Appellant or if he was providing services to the Appellant. The Original Authority concluded that there was no contract of service between Mr. Galla and the Appellant, and therefore, an employer-employee relationship could not be established. Consequently, the remuneration paid to Mr. Galla was deemed taxable under Service Tax.The Appellant argued that Mr. Galla was reappointed as VCMD by the shareholders at the AGM and entered into an agreement with the company to serve in this capacity. They relied on various circulars and case laws, including the Supreme Court ruling in Ram Prasad Vs CIT, which held that a Managing Director could be considered an employee if remunerations were treated as salary under the Income Tax provisions.The Tribunal found that the conclusions drawn by the Original Authority were not based on a correct interpretation of facts and law. It was noted that the appointment of Mr. Galla as VCMD was in accordance with the law, and the restrictive nomination clause in the Articles of Association (AoA) did not invalidate his appointment. The Tribunal emphasized that the role of a Managing Director, as defined under the Companies Act, 2013, includes substantial powers of management, making him a 'key managerial person' and thus an employee of the company.2. Whether the remuneration paid to the VCMD is liable to Service Tax under the Reverse Charge Mechanism:The Department argued that the services provided by Mr. Galla were taxable because he was not an employee. They relied on the AoA and the fact that Mr. Galla was also a Member of Parliament, suggesting he could not devote full time to the company's affairs.The Appellant countered that the remuneration paid to Mr. Galla was subject to TDS under Section 192 of the Income Tax Act, indicating it was treated as salary. They cited various circulars and judgments to support their claim that the remuneration paid to a Managing Director, who is an employee, is not liable to Service Tax.The Tribunal agreed with the Appellant, noting that the remuneration paid to Mr. Galla was treated as salary for Income Tax purposes and was subject to TDS under Section 192. The Tribunal also highlighted that the role of a Managing Director involves substantial management responsibilities, which are indicative of an employer-employee relationship. Therefore, the remuneration paid to Mr. Galla could not be subjected to Service Tax.ConclusionThe Tribunal allowed the appeal, setting aside the impugned order and granting consequential benefits to the Appellant. The Tribunal concluded that Mr. Jayadev Galla, as the Managing Director, was an employee of the Appellant, and any remuneration paid to him in this capacity was not liable to Service Tax under Section 65B(44) of the Finance Act, 1994. The decision was pronounced in the Open Court on 28.06.2024.