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2020 ] GST ON DIRECTOR’S REMUNERATION J81
held that RCM is payable on any amount paid to both executive as well as non-
executive directors whereas Hon’ble Mumbai Tribunal [Allied Blenders and Distill-
ers Pvt. Ltd. v. CCE - 2019 (24) G.S.T.L. 207 (Tri. - Mum.)] held that RCM is not
payable on any amount paid to executive directors. Thus, there were diverging
views by the Hon’ble CESTAT itself on such issues.
Relevant provisions under the Companies Act, 2013 and other allied acts :
(a) The term “Director” [Section 2(94) of the Companies Act, 2013] in-
cludes a director in the nature of the employment of the company.
Thus, it can be said that the Companies Act, 2013 recognizes direc-
tors of the company as an employee also.
(b) For the purpose of keeping a check on issue of share capital the
term “employee” has been defined [Explanation to Rule 12(1) of
Companies (Share Capital & Debenture) Rules, 2014 which also jus-
tifies employees as referred under Section 62(1)(b) of the Companies
Act, 2013] which reiterated hereinunder :
“employee” means, -
(i) a permanent employee of the company who has been
working in India or outside India; or
(ii) a director of the company, whether a whole-time director or
not but excluding an independent director; or
(iii) an employee as defined in clause (i) or (ii) of a subsidi-
ary, in India or outside India, or of a holding company
of the company
but does not include -
(a) an employee who is a promoter or a person belonging to the
promoter group; or
(b) a director who either himself or through his relative or
through any body corporate, directly or indirectly, holds
more than ten per cent of the outstanding equity shares of the
company;
(c) Based on the reading of provisions given above, it can be said that
the directors are employees of the company except if they are inde-
pendent directors or directors acting as a promoter or belonging to
the promoter group. Accordingly, all the private limited companies
including start-up companies or promoter-driven companies would
have wide ramifications.
(d) In our opinion, drawing an inference of the term “employee” from
the above-mentioned definition would be like walking on a narrow
path because primarily the instant definition of “employee” is craft-
ed to keep a check on further issue of equity shares to promoter
who can be a managing director or any such director who is from
the promoter group or such person who holds more than 10% of the
outstanding equity shares.
Analysis
(a) On analysis of both the advance rulings, it can be substantiated that
the Hon’ble judges have presumed that directors are not the em-
ployees of the company without providing any opinion or analysis
on the same. Considering the facts of the case, it may be applicable
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