Page 38 - GSTL_14th May 2020_Vol 36_Part 2

J38 GST LAW TIMES [ Vol. 36

REMUNERATION PAID TO DIRECTORS —
APPLICABILITY OF GST PROVISIONS
By
Prakash Shah
ADVOCATE, PARTNER, PDS LEGAL

The two advance rulings issued by the Learned
Authority for Advance Ruling at Rajasthan and Karna-
taka have stirred up a hornet’s nest on the liability to pay
GST on the payment made to directors of the Company.
In order to appreciate the true purport of the advance rulings, it is neces-
sary to examine what is held by both the Learned Authorities in their respective
rulings.
In Alcon Consulting Engineers (I) Pvt. Ltd. - 2019 (30) G.S.T.L. 678 (A.A.R. -
GST), the applicant had raised the question whether the GST is payable on pay-
ment to the directors under reverse charge mechanism. The Learned Authority
neither examined nor was required to examine the question whether GST is pay-
able on payments to the directors in law. The ruling is therefore not an authority
(assuming it has binding effect) that GST is payable on payments to the directors.
In Clay Craft India Pvt. Ltd. - Advance Ruling No. RAJ/AAR/2019-20/33,
the Learned Authority answered the question whether the GST is payable under
Reverse Charge Mechanism on the salary paid to the director of the Company as
per contract in the affirmative. The applicant was already paying GST on com-
mission paid to the directors under reverse charge mechanism. The salary paid to
the directors was held to be consideration for services by the directors. The
Learned Authority held that clause (1) of Schedule III to the CGST Act is not ap-
plicable as according to it, the directors are not employees. There appears to be
no reasoning given by the Learned Authority for not treating the directors of the
applicant as its employees. It, however, appears that what seems to have ap-
pealed to the Learned Authority was that the applicant itself was paying GST on
the commission paid to the directors.
Relevant provisions of CGST Act, 2017
Section 7 of the CGST Act, defines “SUPPLY”. It means all forms of sup-
ply of goods or services or both such as sale, transfer, barter, exchange, licence,
rental, lease or disposal made or agreed to be made for a consideration by a per-
son in the course or furtherance of business.
Section 7(2) of CGST Act, inter alia, provides that activities or transactions
specified in Schedule III shall be treated neither as a supply of goods nor a sup-
ply of services.
In terms of Schedule III to the CGST Act, the services by an employee to
the employer in the course of or in relation to his employment is not to be treated
as supply of services. Neither of the Learned Authorities in their respective rul-
ings have disputed this legal position.

GST LAW TIMES  14th May 2020  38