Service tax on remuneration paid to whole-time directors treated as non-taxable based on employer-employee relationship and precedent

Issue whether remuneration paid by a company to a whole-time director constitutes a taxable service was considered with emphasis on employer-employee relationship and the statutory definition of service; the Tribunal precedent treating remuneration to whole-time directors as non-taxable was applied, resulting in setting aside the service tax demand in respect of director remuneration. The appeal against the impugned order was allowed on the basis that the matter was no longer res integra and earlier Tribunal findings that such remuneration is not liable to service tax govern the outcome.

---

---

Issues: Whether remuneration paid to a whole-time director is chargeable to service tax under the Finance Act, 1994.

Analysis: The issue was examined in the light of the definition of "service" in Section 65B(44) of the Finance Act, 1994 and the statutory scheme for reverse charge. The Tribunal relied on documentary evidence showing appointment and tax treatment of the director as an employee and followed earlier Tribunal precedents and CBEC clarification (Circular No.115/09/2009-ST) holding that remuneration paid to whole-time directors in the nature of salary is pursuant to an employer-employee relationship and does not constitute a taxable "service". The matter was held to be no longer res integra as identical questions have been decided by the Tribunal in prior orders which were followed by applying judicial discipline.

Conclusion: Remuneration paid to a whole-time director in the nature of salary is not liable to service tax; appeal allowed in favour of the assessee.

---