TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1196
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....s to the company, the company was liable to pay service tax under RCM by virtue of Rule 2(1)(d)(i)(EE)/Rule 6 read with Section 68 and Notification No.30/2012-ST dated 20.6.2012 (as amended); (ii) tax aggregating Rs.1,07,53,200/- was due; (iii) interest under Section 75 and penalty of Rs.10,75,320/- under Section 76 (as amended w.e.f. 14.05.2015 / transitional provision Section 78B) were leviable. The Appellant challenges these findings. 2.2 The facts briefly stated as culled out from the records are that the appellant is registered under Service Tax (GTA service) and during 07.08.2012 - 31.03.2014 paid total remuneration of Rs.8,70,00,000/- to three persons who acted as directors / chairman of the company (Shri M. Chinnasami - Chairman, Shri R. Krishnamurthy - Director, Shri K. Thangavelu - Director). 2.3 During departmental Audit, it was observed that the appellant had not discharged service tax liability under reverse charge on remuneration paid to the directors. A Show Cause Notice was issued and after due process of Law, an order confirming tax, interest and penalty was passed (impugned order). 3. Aggrieved by the impugned Order, the Appellant is ....
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....mployee relationship; on the contrary the corporate documents and appointment pattern suggest principal-to-principal relationship and that Rule 2(1)(d)(i)(EE) r/w Notification No.30/2012-ST makes the recipient (company) liable to pay 100% of tax under RCM for services provided by the Directors to the company. 7. We have heard the rival submissions advanced by both sides and have carefully perused the appeal records, the impugned order, the statutory provisions, AGM resolution, Form-16's, TDS returns, ledger extracts, audited financials and other material and the case Laws relied upon by the Appellant as well as the Respondent. Upon consideration of the entire material on record, the following issues arise for our determination as to whether: - a) the amounts paid by the Appellant-Company to its Directors during the period 07.08.2012 to 31.03.2014 constitute "salary" paid in the course of employment, falling within the exclusion under Section 65B(44)(b) of the Finance Act, 1994; or whether such payments amount to "consideration" for taxable services rendered by the Directors in an independent capacity. b) in the facts and circumstances of the case, the Appellant....
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....ation No.30/2012-ST read with Rule 2(1)(d)(i)(EE) of ST Rules. Relying on the content of the audit report and the Appellant's corporate structure, the respondent argued that the directors acted as principals and not as employees; the Adjudicating Authority (AA) accordingly treated the payments as taxable consideration. The Revenue further submitted that mere labelling of entries as "salary" in accounts does not conclusively prove an employer-employee relationship. 8.3 We have carefully examined the documentary evidence made available on record. The test to determine whether a person is an employee (contract of service) or an independent service-provider (contract for service) requires examination of substance over form. The record includes: (i) appointment / re-appointment letters; (ii) AGM resolution fixing the salary; (iii) ledger entries and audited classification under "Salaries & Wages"; (iv) TDS deduction under Section 192 and issue of Form-16; (v) statutory audit certificates/3CA/3CD and 24Q returns. These documents taken together raise a strong and coherent inference that the directors functioned as whole-time employees. Me....
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....), Notification No. 30/2012-ST, CBDT and CBEC clarifications, and the statutory treatment of remuneration under the Income Tax Act, this Tribunal held categorically that no service tax is leviable under reverse charge on remuneration/salary paid to Directors who function as employees of the company. 8.7 Thus, the issue of payment of service tax on the remuneration paid to the Directors is no more res-integra where it is termed as salary and subjected to TDS under Section 192 of the Income Tax Act, the employer and employee relationship gets established and the same is excluded from the purview of the service tax. We find that this issue has been discussed in the case of M/s. Dixcy Textiles Pvt. Ltd. Vs. The Commissioner of Central Excise & Service Tax, Salem [2025 (5) TMI 316-CESTAT CHENNAI], wherein the Tribunal Chennai has held as follows: - "6) The singular issue that arises for determination is whether the demand made on the appellant on the remuneration paid to its directors is tenable. 7) We note that the adjudicating authority has chosen to ignore the appellant's contention that there is an employer employee relation on the grounds that no appointment or....
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....ole- time director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time director. We are thoroughly convinced that when the very provisions of the Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences, it leads to the conclusion that those directors are employees of the assessee company. 7. Further, in the present case, the appellant has duly deducted tax under Section 192 of the Income Tax Act which is the applicable provisions for TDS on payments to employees. This factual and legal position also fortifies the submission made by the appellant that the whole-time directors who are entitled to variable pay in the form of commission are 'employees' and payments actually made to them are in the nature of salaries. This factual position cannot be faulted in absence of any evidence to the contrary. The submission of Ld. DR as well as the finding made by the Commissioner in the impugned order that since the whole-time directors are compensated by way of variable pay and hence not employees, does ....