TaxTMI 
TaxTMI 
2025 (6) TMI 13
X X X X Extracts X X X X
X X X X Extracts X X X X
....hinam, S. Venkatachalamurthi and P. Chinnusamy, the Directors of the Appellant company for the services rendered by them to their company. Therefore, the Department issued a Show Cause Notice No.29/2014 AC(ST) dated 14.10.2014, wherein the Department alleged that the Appellants contravened the provisions of Section 68 of Finance Act 1994, read with Rule 2(1)(d)(i)(EE) and Rule 6 of Service tax Rules, 1994 and also Notification No.30/2012-ST dated 20.06.2012 inasmuch as they failed to pay appropriate service tax under the reverse charge on the services rendered by the Directors of the company and received by the Appellant during the period from 07.08.2012 to 31.03.2014. 2.2 In terms of the aforesaid Show Cause Notice, the Appellants were called upon to show cause as to why: - i. Service Tax of Rs.4,67.208 (Service Tax Rs.4,53,600/- + Education Cess - Rs.9,072/+SHE Cess - Rs.4,536/-) should not be demanded from them under Section 73(1) of the Finance Act, 1994. ii. Interest at the applicable rates on the amount at (i) above should not be demanded from them under Section 75 of the Act and iii. Penalty should not be imposed on them under Section 76 of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the company, service tax is not payable. Director may be a Managing Director, whole time director or executive director and as long as there is employer-employee relation, the mode of payment will not alter the nature of service. v. that all the three Directors of the company were appointed as Executive Directors of the company by way of Extra Ordinary General Meeting on such salary and other perquisites, which are equivalent and on par with other employees of the company. The Executive Directors were delegated with the work of managing the day-to-day affairs of the company and they are not giving any advice/consultancy to the management, in order to term them as Service providers to levy service tax. vi. that when there is employee-employer relationship, then there is no service tax. Once, the company establishes that there is an employee and employer relationship between the Managing Director and the Company, then any mode of payments by way of commission, stock options, performance related bonus, etc., will not alter the nature of the service. vii. that CBE&C, vide letter No. 324/Comm.(ST)/2008, dated 1-12-2008 has clarified that commission paid b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....08.2012 to 31.03.2014 amounting the Rs.4,67,208/-, proceedings were initiated vide Show Cause Notice dated 14.10.2014. The Original Adjudicating Authority has come to the conclusion that services provided by the Directors to the Appellant are excluded for charging service tax and dropped the proceedings. The Department filed an appeal to the Commissioner (Appeals) on the ground that the order has not clearly discussed about the employer and employee relationship of the Managing Director of the Company and in the Negative List regime of taxation, services provided or agreed to be provided by the Director of a company is made taxable w.e.f. 07.08.2012. Thus, the main ground raised for filing an appeal to the Commissioner (Appeals) is that the services rendered by the Directors of the Appellant will amount to services as defined under Section 65B(44) of the Finance Act, 1994 and does not qualify as a provision of service by an employer to the employee company in the course of employment to be included in the exclusion clause (6) to Section 65B(44) of the finance Act, 1994 and salary paid to the Directors shall be the 'consideration' in money and being treated as value as per Section 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998.); ] (b) by a foreman of chit fund for conducting or organising a chit in any manner.] Explanation 3.- For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 4.- A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;" 9. It is not disputed in this case that the remuneration paid to the Directors was subjected to TDS under Section 192 of the Income Tax Act. In this connection, we refer to the Board Circular No. 115/09/2009-ST dated 31.07.2009 which is binding on the Authorities, and which reads as given below: - ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome Tax Act, 1961 yet has chosen to hold that the directors are not employees as in his view, the term salary does not include remuneration, sitting fee etc., paid to the directors and thereby the exclusive clause of Section 65B(44) is inapplicable. Strangely, he has chosen to do so, without controverting the evidence adduced by the appellant along with its reply, by way of resolutions passed by the Board of Directors in accordance with the Companies Act which stated inter-alia that the directors concerned in the notice have been appointed as whole time directors and will be entitled to a salary as may be fixed from time to time. He has also ignored the Form 16 issued as a Certificate under Section 203 of the Income Tax Act, 1961 for tax deducted at source on salary in respect of these directors that was adduced in evidence. 8) We find that this Tribunal in Maithan Alloys Ltd v. Commissioner of C.Ex & ST, Bolpur, 2020 (33) GST 228 (Tri-Kolkata) has held as under: "6. In the instant case, it is not in dispute that service tax has been duly paid on remuneration paid to directors who are not whole-time employee directors. The only dispute herein is for payment of r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s clearly set the legal position that when the Income Tax Department considers payment in the nomenclature 'consultancy fee' as salaries, on which TDS is also made, the said payments cannot be said towards rendition of taxable service for levy of service tax. The decision in case of PCM Cement Concrete Pvt. Ltd. (supra) has set the legal proposition that consideration paid to whole-time directors would be treated as payment of salaries inasmuch as there would be employer-employee relationships and in such case the levy of service tax cannot be sustained. 8. In view of the above discussions and the settled legal judicial precedence and provisions contained in statutes referred to above, demand of service tax on remuneration paid to whole-time directors cannot be sustained and hence set aside. Since demand of service tax is set aside, penalty and interest are also not sustainable." Similar view is seen taken in the decision of this Tribunal in Amar Raja Batteries v Commr of Central Tax, Tirupathi-GST, (2024) 21 Centax 216 (Tri-Hyd), and Allied Blenders & Distillers Pvt Ltd v CCE & ST, Aurangabad, 2019 (24) GSTL, 207 (Tri- Mumbai). 9) We also note that the a....