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

J96 GST LAW TIMES [ Vol. 36
services and hence liable to GST on RCM basis or is it covered under Clause (1) of
the Schedule III ibid.
In Re : M/s. Alcon Consulting Engineers (India) Pvt. Ltd. - KAR ADRG
83/2019, the Authority for Advance Ruling, Karnataka observed and held that
the remuneration to the Directors paid by the applicant are not covered under
clause (1) of the Schedule III to the CGST Act, 2017, as the Director is not the em-
ployee of the Company. The consideration paid to the Director is in relation to
the services provided by the Director to the Company and the recipient of such
service is the Company as per clause (93) of Section 2 of the CGST Act and the
supplier of such service is the Director. However, the AAR, Karnataka has not
ventured into considering the possibility of a person being director of the com-
pany and simultaneously working as an employee also.
In Re : M/s. Clay Craft India Pvt. Ltd. (supra), the applicant has raised the
following questions before the Rajasthan AAR :
(a) Whether GST is payable on a reverse charge basis on the salary paid
to the director of the company as per the contract?
(b) Whether GST applicability will differ if the said director is also a
part-time director in any other company?
The applicant submitted that GST will not apply on the remuneration paid to di-
rectors as they are the employees and they are given salaries along with benefits as
per the policy decided by the company for its employees, thus, covered under
Schedule III. In support of their contention, the applicant submitted excerpt of
memorandum and article of association which mentioned that appointment of di-
rectors and so on.
On the contrary, the department argued that the director is not the em-
ployee of the company and therefore, the amount paid to them will not be cov-
ered under Schedule-III. The AAR held that directors are not the employees of
the company and hence, liable to GST. It emphasised that the director is a suppli-
er of services and the applicant (company) is the recipient of such services. The
services rendered by the director to the company for which the consideration is
paid to them, under any head, is chargeable to GST on reverse charge basis.
The AAR in the above case, further noted that since the applicant is the
company and is located in the taxable territory and the Directors’ remuneration
is paid for the services supplied by the Director to the applicant company and
hence the same is liable to tax under reverse charge basis under Notification No.
13/2017-C.T. (Rate), dated 28-6-2017 issued under Section 9(3) of the CGST Act,
2017. Therefore, in respect of both the questions raised above, the applicant will
be liable to pay GST.
The Advance Rulings neither provide for a detailed reasoning nor con-
sidered the situations in which a director may also be an employee of the com-
pany. For these reasons, the said rulings are against the letter and spirit of De-
partmental Clarification dated 15th November, 2019 (supra) and hence bad in
law.
Who is a director? - Companies Act perspective :
The term “director” is defined in Companies Act, 2013 which is the prin-
cipal statute governing the affairs of companies in India. According to Section
2(34) of the Companies Act, “director” means a director appointed to the Board
of a company. According to Section 2(10) of Companies Act, “Board of Directors”

GST LAW TIMES  28th May 2020  36