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The CESTAT allowed the appeal, setting aside the demand and penalties for service tax levied on remuneration paid to whole-time directors. It was held that the directors, appointed under employment agreements and recognized as key managerial personnel under the Companies Act, function as employees rather than service providers. Their remuneration, subjected to TDS under the Income Tax Act, establishes an employer-employee relationship, excluding such payments from service tax liability under reverse charge. The Tribunal further noted that appointment and services of directors fall under the Negative List of services, reinforcing non-applicability of service tax. Precedents affirm that remuneration to whole-time directors functioning as employees does not attract service tax, thereby rendering the impugned order untenable.
The CESTAT allowed the appeal, setting aside the demand and penalties for service tax levied on remuneration paid to whole-time directors. It was held that the directors, appointed under employment agreements and recognized as key managerial personnel under the Companies Act, function as employees rather than service providers. Their remuneration, subjected to TDS under the Income Tax Act, establishes an employer-employee relationship, excluding such payments from service tax liability under reverse charge. The Tribunal further noted that appointment and services of directors fall under the Negative List of services, reinforcing non-applicability of service tax. Precedents affirm that remuneration to whole-time directors functioning as employees does not attract service tax, thereby rendering the impugned order untenable.
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