Page 34 - GSTL_ 28th May 2020_Vol 36_Part 4

J94 GST LAW TIMES [ Vol. 36

GST ON DIRECTOR’S REMUNERATION —
A CRITICAL ANALYSIS
By
CA K.V. Padmanathan
PARTNER, K.V. VENKITARAMAN & CO.

Introduction
The recent decision of Authority for Advance
Ruling (AAR), Rajasthan in Re : M/s. Clay Craft India Pvt.
Ltd. (RAJ/AAR/2019-20/33) that the Directors’ remuner-
ation is paid for the services supplied by the Director to the applicant company
shall be liable to tax under reverse charge basis under Section 9(3) of the CGST
Act, 2017 has left companies perplexed.
On the onset, it may be relevant to note that Section 103(1) of CGST Act
states that the advance ruling pronounced by the Authority or the Appellate Au-
thority shall be binding only on the applicant who had sought it in respect of any
matter referred to in the said ruling and on the concerned officer or the jurisdic-
tional officer in respect of the applicant. The applicant may even go on appeal
against the pronouncement. Nonetheless, it reflects the views of the department
in respect of the particular issue for which ruling was sought and for that reason
it cannot simply be ignored.
It all started with the article in the Economic Times dated 14th Novem-
ber, 2019 reporting that the Tax Department wants to impose 18% GST on CXO
salaries and that some of the top companies headquartered in Pune, Mumbai and
New Delhi have started receiving queries from the tax department on cross-
charging of CEO and CFO salaries. Consequently, the C.B.I. & C. comes out with
a clarification on 15th November, 2019 that salaries are not subject to GST and no
GST has been demanded on salaries paid to CEOs or employees. C.B.I. & C. said
that the media report in this regard alleging that tax authorities want to impose
GST on salaries paid to employees is factually incorrect and misrepresents tax
authorities.
In this issue, ruling of the AAR has come out contrary to the popular un-
derstanding and hence, requires some consideration. Since litigation in GST is
still in the beginning stage, the Department may issue notices demanding tax on
director’s remuneration in the days to come. This article is an attempt to analyse
the issue in light of various judicial precedents under various statutes such as
Companies Act, Income-tax Act, Service Tax law; and to give a very practical
solution to the problem.
Legal provisions under GST
Supply is the keystone on which entire edifice of GST hinges. Taxability
is attracted when a transaction or activity comes within the scope of supply as set
out in Section 7 of the CGST Act, 2017 read with Schedules I, II and III. Section 7
sets out as under :
(1) For the purposes of this Act, the expression “supply” includes -
(a) all forms of supply of goods or services or both such as sale,
transfer, barter, exchange, licence, rental, lease or disposal
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