Whether service tax leviable on remuneration paid to Directors in addition to salary

[samiuddin ansari]

Hello....Good evening Sir,

My friends Company engaged in manufacture of Ball and Bearing and accordingly registered with Central Excise. Now, CGST Audit people, at the time of conducting audit, raised an observation and demanded service tax on remuneration paid to all the Directors of the Company holding that the remuneration is not a salary since professional tax as per Gujarat Professional Tax Act, no professional tax had been deducted from the amount paid to them. Considering only such aspect, they raised an objection and instructed to pay with interest and penalty. Please throw light on such matter and guide as to whether service tax is leviable on such amount as this is not a commission or special charges or any kind fees paid to them.

[Rajagopalan Ranganathan]

Sir,

If the rtelationship between the director and the company is in the nature of employee-employer then no service tax is chargeable since according to Section 65 B (44) (b) of erstwhile Finance Act, 1994 " "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include a provision of service by an employee to the employer in the course of or in relation to his employment.

Non-payment of profession tax to the local authorities shall not make the payment made liable to service tax.

[Ganeshan Kalyani]

I totally agree with the reply of Sri Rajagopalan Sir. Service tax is not applicable when there is employee- employer relationship between the Director of the company and the company.

[KASTURI SETHI]

I agree with both experts.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Rajagopalan.

[YAGAY andSUN]

Service Tax would not be applicable on the amount which is disbursed as salary and if TDS is deducted on such amount.

AI Summary

Employee-employer relationship excludes directors' salary from service tax when remuneration is in the course of employment. Whether service tax is payable on directors' remuneration depends on the nature of the director-company relationship: where a director is in an employee-employer relationship and remuneration is paid as salary, the definition of 'service' (per Section 65B(44)(b)) excludes provision of service by an employee to the employer, so service tax is not chargeable. Non-payment of local professional tax does not by itself convert such payments into taxable services, and payroll features like TDS deductions support treatment as employment income.