Services performed by director of the company - Payment of Service Tax reg.

[vinay wakde]

The services performed by a director (other than Managing Director/Executive Director/Whole time Director who are employees of the Company) fall within the ambit of taxable services with effect from 1st July, 2012. Accordingly, service tax would be applicable on sitting fees and/or commission to Non-Executive Directors of the Company.

Kindly let us clarify the following :-

1. Whether Director is required to obtain Service Tax Registration?
2. Whether the payment shall be made on the strength of Invoice/Bill.
3. Whether Input service credit is eligible if the unit manufacturing unit & providing output services.
4. If the Sitting fees is not more than Rs. 10 Lacs, whether the company has  to pay Service Tax reversed charge method?

Regards,

VINAY

[Vijay Chitte]

CBE&C, vide Dy. no.324/Comm(ST)/2008 dated 01-12-2008 and Circular no. 115/09/2009-ST dated 31-07-2009 commission paid to director cannot be equated with commission to commission agent. which cover all directors.

I understand that non-wholetime director is not employee of the company, as per wide defination of "Service" this circular is doubtful now. However, assessee can take shelter behind this cirular and not pay ST, if he intends to fight it out (if need arises).

[YAGAY andSUN]

Earlier, Directors were not treated as service providers. Specific clarfications were issued by the board in this regard.  But now, July onwards, Department may raise objections.  Advance Ruling may be required to demistifying this issue.

[Joginder Pal]

The clarification in 2009 was that the services of the full time or even Independent Directors are not in the nature of the Business Auxilliary Service to be covered under the service tax. After the concept of Negative List came into effect, all services are taxable except those exempted. Hence the issue is whether the services by the director are in the shape of 'service' or not.  If these are services, then in the absence of a specific notification, the same will be taxable. The Government through the implementation of the Negative service tax intends to cover all services, which are other than trading or are specifically not specifically exempted.

As regards the Managing/Executive/ whole-time Directors, their relationships with the company are those of the Employee-Employer. Hence their emulments are in the nature of payments to the employee, therefore not taxable under Service Tax.

However the part-time/expert/independent directors, the are in the nature of providing their professional/expert services to the company.Hence there appear more probibility of its chargeable to service tax.

[LALIT MUNOYAT]

 

Pl refer Press Note dated 13-07-2012 issued by the Ministry of Finance. As per the said Note the following scnerios

 

1) Payments to directors...

       Not excluded and thus taxable:

     1) Applicable to all kinds of directors except of government regulatory bodies

     2) Any monetary or no-monetary consideration

 

              a) Director’s fee
              b) Commission/bonus
              c) Company car/ travel reimbursements

Now Refer: Services by Employee to employer:

1) Casual employees covered; contractual outside

• Services provided outside the terms of employment will be taxable e.g.

 

                  ―Private coaching beyond school hours when under no obligation under the contract taxable

                  ―Bonus, overtime and termination amount not taxable

                  ―Non-compete taxabl

 

See the difference: In case of contractual employee, commission ^ bonus are not taxable whereas in the case of Directors the same is taxable.

It is therefore advisable, wherever possible, a contract of employment may be entered into with the Directors with detailed specification as to

what payments will be made in terms of the contract. The directors should also take care to spend expenses in the name of the company itself

like getting the Pertro Bill issued in the name of the company itself, bill from the hotel stay etc. Difficult will arise in the case of travelling where tickets

are not issued in the name of the company but only in personal name. In such cases, the payment by cheque should be made directly by the company

and not by the Director and thereafter get reimbursement. Many more issues are there which should be tackled under above guidance.

 

By CA Lalit Munoyat

[RAJESH MANGAL AGRAWAL]

I am fully agreed with Mr Joginder Pal Comment posted on 16.07.12 above.

CA Rajesh Mangal Agrawal

[Lok B. Chand]

I am fully agreed with Mr Joginder Pal Comment posted on 16.07.12 above.

AI Summary

Director services taxable: non executive director fees and commissions attract service tax, requiring registration and compliance. Non executive, part time and independent directors' services, including sitting fees and commission, are taxable under service tax following the negative list regime; emoluments of managing, executive or whole time directors as employer-employee payments remain outside service tax. Compliance questions include registration, invoicing, input tax credit eligibility for a unit providing taxable outputs, and the applicability of the reverse charge mechanism; taxpayers may rely on prior circulars but should document employment terms and route expenses through the company to manage tax consequences.