Employee-employer exclusion bars service tax on whole-time directors' remuneration; duplicate demand also fails where tax was already paid from the proper office.

Remuneration paid to whole-time directors was treated as employment income because it was supported by employment agreements, assessed as salary, and subjected to TDS under Section 192; on that basis, the services fell within the employee-employer exclusion in Section 65B(44)(b) of the Finance Act, 1994, and service tax was not sustainable. For non-whole-time directors, the demand raised at Salem could not stand where ST-3 returns showed tax had already been discharged from the Bhubaneswar office, there was no centralized registration, and the Revenue produced no contrary material showing receipt of the services at Salem. The common order confirming service tax, interest, and penalties was therefore set aside.

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Issues: (i) whether remuneration paid to whole-time directors was exigible to service tax under the reverse charge mechanism; (ii) whether service tax could be demanded at Salem for remuneration paid to non-whole-time directors when the assessee had already discharged tax from its Bhubaneswar office.

Issue (i): whether remuneration paid to whole-time directors was exigible to service tax under the reverse charge mechanism.

Analysis: The remuneration to the whole-time directors was supported by employment agreements, treated as salary for income-tax purposes, and subjected to tax deducted at source under Section 192 of the Income-tax Act, 1961. On these facts, the directors were held to be employees and their services fell within the exclusion for service by an employee to the employer in the course of employment under Section 65B(44)(b) of the Finance Act, 1994. The Tribunal also followed earlier co-ordinate bench decisions taking the same view on remuneration paid to whole-time directors.

Conclusion: The demand of service tax on remuneration paid to whole-time directors was not sustainable and was set aside in favour of the assessee.

Issue (ii): whether service tax could be demanded at Salem for remuneration paid to non-whole-time directors when the assessee had already discharged tax from its Bhubaneswar office.

Analysis: The assessee produced ST-3 returns showing discharge of service tax from the Bhubaneswar office, which was the office from where the non-whole-time directors were engaged and where the services were received. There was no centralized registration, no contrary material from the Revenue showing receipt of those services at Salem, and no basis to disbelieve the disclosed returns or the tax already paid. The demand was also found to be linked to earlier proceedings that had already been set aside.

Conclusion: The demand raised at Salem on the remuneration paid to the non-whole-time directors was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The common order confirming service tax, interest, and penalties could not be sustained; all appeals were allowed with consequential relief.

Ratio Decidendi: Remuneration paid to directors functioning as employees, and subjected to salary treatment and TDS, is outside the ambit of taxable service under the employee-employer exclusion; a demand cannot also be sustained where the tax has already been discharged from the appropriate office on the same taxable event.

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