Salary paid to whole-time directors not liable to service tax under reverse charge mechanism

CESTAT Ahmedabad held that salary paid to whole-time directors employed by the company is not liable to service tax under reverse charge mechanism, following precedent in Ratnamani Metals case. Service tax demand on employed director's remuneration was set aside. However, sitting fees paid to non-employed directors remains taxable. Matter regarding non-employed directors' fees was remanded to adjudicating authority for verification of reconciliation chart showing appellant's service tax discharge. Appeal was allowed with modifications to the original order.

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Issues:
1. Liability of service tax under reverse charge mechanism on directors' remuneration.

Analysis:
The judgment by the Appellate Tribunal CESTAT Ahmedabad addressed the issue of whether the appellant is liable to pay Service Tax under reverse charge mechanism on the remuneration paid to whole-time and non-employed directors. The appellant argued that remuneration paid to the whole-time director, treated as salary for income tax purposes and subject to TDS, is not liable to service tax. This argument was supported by a previous Tribunal decision in the case of Ratnamani Metals and Tubes Ltd. The Tribunal agreed that when remuneration is in the form of salary to a director, it is not subject to service tax. The Tribunal cited various judgments and upheld the appellant's position regarding the remuneration paid to the whole-time director, setting aside the service tax related to that payment.

Regarding the remuneration paid to non-employed directors as sitting fees, the appellant acknowledged the service tax liability and provided a reconciliation chart to demonstrate payment. However, due to a lack of proper co-relation, the Tribunal remanded the matter to verify the correctness of the reconciliation provided. The Tribunal modified the impugned order to address this issue, allowing the appeal in part. The judgment emphasized the importance of verifying the payment of service tax on remuneration paid to non-employed directors, ensuring compliance with tax obligations.

In conclusion, the judgment clarified the liability of service tax on directors' remuneration under reverse charge mechanism, distinguishing between remuneration paid to whole-time and non-employed directors. It highlighted the significance of proper documentation and compliance with tax regulations to avoid disputes and ensure accurate payment of service tax. The Tribunal's decision provided a nuanced analysis of the issues raised by the appellant, ultimately setting aside the service tax related to remuneration paid to the whole-time director while remanding the matter for verification regarding the payment to non-employed directors.

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