Service tax applicability on Directors remuneration

[Gopalarathnam Muralidharan]

A private Ltd company pays remuneration to the directors and does not deduct PF from the directors nor the company pays PF contribution.   In the recently concluded service tax audit, they observed since in the absence of PF deduction and payment of PF, no employer employee relationship subsists and hence whatever payment made to Directors are to be towards Professional services rendered and hence Director's as service provided they need to pay service tax.  My querries are

1) WHETHER PF Deduction and Payment are the conclusive proof for treating the directors as employees

2) Whether service tax audit is right in treating services of directors are to be treated as independant professional services and can not be regarded as Director's remuneration

AI Summary

Employer-employee relationship: absence of provident fund deductions may trigger service-tax treatment unless employment is proven.
Service taxability of directors' payments hinges on proving an employer-employee relationship; absence of provident fund deduction alone is not determinative because some directors may be excluded from PF. The company bears the burden to produce appointment agreements, board resolutions, statutory filings and payroll records to establish employment; failing that, auditors may classify director remuneration as taxable professional services.