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2026 (5) TMI 1669
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....tion paid to the Directors of the Company for the period 07.08.2012 to 31.03.2014. It was alleged therein that from 7th August 2012, the services provided or agreed to be provided by a Director of the Company or a Body Corporate, to the said company or the Body Corporate, are liable to be levied service tax under reverse charge mechanism vide Notification No.45/2012 - ST dated 07.08.2012, which amended the Notification No.30/2012-ST dated 20.06.2012. The said proceedings culminated in the Order in Original No.15/2015 dated 23.10.2015 confirming the demand along with appropriate interest and imposing penalties. The present proceedings are in respect of statements of demand issued subsequently, namely, SOD No.2/2016 dated 24.02.2016 for the period 01.04.2014 to 31.03.2015, SOD No.03/2018 - ST (ADC) dated 11.04.2018 for the period 01.04.2015 to 31.03.2016 and SOD No.6/2019 dated 29.03.2019 for the period 01.04.2016 to 31.06.2017, with each SOD detailing the previous SCNs / SOD issued and stating that the grounds mentioned therein form part and parcel of the subject SOD. After due process of law, the Adjudicating Authority vide common Order in Original No.14-16 / 2021- (ST - Commr.) da....
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....fixed based on the percentage of profit of the company. It was submitted that the Tribunal in the case of Alchemie Organics v CCE & ST, (2024) 25 Centax 381 has held that renumeration including salary, allowance and commission based on profit of the company is not liable to service tax under reverse charge mechanism. Reliance was also placed on the decision in Lilanand Magnesites Pvt Ltd v CCE & ST, (2025) 26 Centax 172 (Tri-Ahmd) in this regard. 4. Ld. Consultant, drawing attention to the grounds of appeal with respect to SOD No.06/2019 dated 29.03.2019 for the period April 2016 to June 2017, made specific submissions with respect to the renumeration paid to non-whole-time directors contending that the order of the Ld. Commissioner of GST and Central Excise with respect to the confirmation of demand of service tax on the renumeration paid to Mr. Anshuman Patnaik and Mr. Anurag Patnaik is erroneous and perverse in as much as the Appellant had already discharged the applicable service tax from its Bhubaneswar office. It was submitted that with effect from July 2015 the appellant had set up a new office in Bhubaneswar, Orissa from where the two non-whole time Directors were workin....
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....Final Order No.40776/2025 dated 30.07.2025, has decided very same issue in the Appellants favour. The relevant portions are as under: "6. The short issue involved for determination in the present appeal is whether the remuneration paid to the Directors by the Appellant is chargeable to Service Tax and whether the Appellants are required to discharge Service Tax under reverse charge mechanism in terms of Rule 2(1)(d)(i)EE read with Section 67 & 68 of the Finance Act, and Rule 6 of the Service Tax Rules, 1994? 7. Facts in this appeal indicate that the Appellant Company had paid remuneration to the Directors for the services rendered by them. As the Appellant has failed to pay appropriate service tax under Reverse Charge Mechanism on the remuneration paid to the Directors of the Company for the period from 07.08.2012 to 31.03.2014 amounting the Rs.2,11,78,118/-, proceedings were initiated against them. The Adjudicating Authority in his impugned order has held that there is no employer-employee relationship between the Directors and the Appellant, and on analyzing the functions/activities carried out by the respective Directors to the Appellant, none of the functions/....
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....d out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out- [(a) by a lottery distributor or selling agent on behalf of the State Government, in relation 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 remu....
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....[as defined in clause (60) of Section 2] for any violation or noncompliance of the provisions of Companies Act. Thus, in our view, the whole-time Director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that the whole-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 /Appellant and the whole-time Directors. 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 Appellant company. 10.3 In view of the above discussion, it becomes clear that the activity of appointment of Directors and their services is covered under Negative List of services prescribed under Section 65B (44) (b) of the FA 1994 and so it follows that the impugned Order-in-Original No. 15/2015 (ST-Commr.) dated 23.10.2015 is not tenable. ....
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....hat 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 remuneration to whole time directors, which is a fact on record. The provisions of Companies Act, 2013, contained in Section 2(94), duly defines 'whole-time director' to include a director in the whole-time employment of the company. A whole-time director refers to a director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration. We further find that the position of a whole-time director is a position of significance under the Companies Act. Moreover, a whole-time director is considered and recognized as 'key managerial personnel' under Section 2(51) of the Companies Act. Further, he is an officer in default [as defined in clause (60) of Section 2] for any violation or non-compliance of the provisions of Companies Act. Thus, in our view, the whole-time director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that ....
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....24) 21 Centax 216 (Tri.-Hyd.)], and Allied Blenders & Distillers Pvt Ltd Vs. CCE & ST, Aurangabad, [2019 (24) GSTL 207 (Tri.- Mumbai)]. 13. In a recent decision of this Tribunal in the case M/s. Vinayaka Electro Alloys Pvt. Ltd. vs Commissioner of GST & Central Excise, Salem, [2025 (6) TMI 13 - CESTAT CHENNAI], it was held that no service tax is payable under RCM on remuneration paid to whole-time directors functioning as employees. This judgment reinforces the principle that remuneration to whole-time directors, when functioning as an employee, does not attract service tax under RCM. 14. Appreciating the ratio of the above decisions as applicable to the facts of the present appeal, the impugned Order-in-Original No. 15/2015-(ST-COMMR) dated 23.10.2015 passed by the Commissioner of Central Excise, Salem 101/2015ST dated 26.06.2015 cannot be sustained and as such, is ordered to be set aside. As such, both the demand of service tax and penalties confirmed in the impugned order are set aside. 15. Therefore, the appeal is allowed with consequential relief, if any, as per the law." 10. The reported decisions in Maithan Alloys Limited v CCE & ST, 2020 (33) G....
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....of the Adjudicating Authority itself having put the Appellant to notice as to what further evidence he would require to arrive at his satisfaction, after the Appellant has produced the ST-3 returns. 12. Further, we also notice from the Appeal records that for the period April 14 to March 15, the SCN Annexure itself, has deducted the service tax liability in respect of the said non whole time Directors, as has been discharged by the Appellant, while computing the service tax liability that stood demanded in respect of the Whole Time Directors. The bonafide of the Appellant, as a compliant assessee is thus evidenced and therefore, we also do not find any reason to disbelieve the Appellant when it has adduced the ST-3 returns indicating discharge of service tax in respect of the nonwhole time Directors with respect to their services received by the Appellant's Bhubaneshwar Office. 13. Furthermore, we also find merits in the Appellant's contention that when it was the Appellant's Bhubaneshwar Office were the said non-Whole Time Directors were engaged and were discharging their duties, given that there was no centralized registration, the question of demanding service tax at the S....