Page 41 - GSTL_ 28th May 2020_Vol 36_Part 4

2020 ] GST ON DIRECTOR’S REMUNERATION — A CRITICAL ANALYSIS J101
Companies Act, 1956. The circular clarified that non-whole-time directors of the
company are not covered under the exempted list and, thereby, the sitting
fee/commission payable to them by the company is liable to Service Tax.
It is evident from the above circular issued by MCA that Service Tax was
payable only on any commission or sitting fees paid to non-whole-time directors.
The exclusion of Whole-time Directors and Managing Directors in the above cir-
cular clarifies the intention of Legislature to tax only those services rendered by
non-whole-time directors which are not in the course of their employment. This
preposition holds goods even in the GST regime also.
Even during Service Tax regime, there was hue and cry regarding the
taxability of director’s remuneration due to the decision of a Single Member
Bench of Calcutta CESTAT in Brahm Alloy Limited v. Commissioner of CGST & C.
Ex., Durgapur - 2019 (24) G.S.T.L. 616 (Tri. - Cal.). The department started issuing
notices to companies relying on the aforementioned decision. The Calcutta
CESTAT, while examining the applicability of Service Tax under reverse charge
liability on director’s remuneration, held the director remuneration was taxable
considering the facts of the case. The Tribunal further observed as to when the
same would not be subjected to Service Tax :
“In short, to establish the employer-employee relationship, the clause of hir-
ing and firing are an essential ingredient without which it cannot be con-
strued whether the individual is the Promoter/Director or an employee Di-
rector. The remuneration cheque has to be paid on a month to month basis
along with the admissible perquisites.”
In the above case, the directors have shown the remuneration under the head ‘Sal-
ary’ in the respective Income Tax Return and Tax was deducted at source by the
appellant company on such payments. The Tribunal failed to consider the ratio
laid out in Rent Works India Pvt. Ltd. v. CCE, Mumbai (supra).
However, in Maithan Alloys Ltd. v. CCE & ST, 2019-VIL-250-CESTAT-
KOL-ST, the appellant had duly deducted tax under Section 192 of the Income-
tax Act which is the applicable provision for TDS on payments to employees. The
Division Bench of the Calcutta CESTAT noted that the whole-time directors who
are entitled to variable pay in the form of commission are ‘employees’ and pay-
ments actually made to them are in the nature of salaries. In the absence of any
evidence to the contrary, the Tribunal held that demand of Service Tax on remu-
neration paid to whole-time directors cannot be sustained and hence liable to be
set aside.
In Allied Blenders and Distillers (P) Ltd. v. CCE & ST [2019] 101 tax-
mann.com 462 (Mumbai - CESTAT), it was held that where a company paid re-
muneration to its whole-time directors for managing day-to-day affairs of the
company and made necessary deductions on account of Provident Fund, Profes-
sional Tax and TDS as applicable and declared these directors to all statutory
authorities as employees of the company, remuneration paid to them was noth-
ing but salary and company was not liable to pay Service Tax on remuneration
paid to the directors.
In NRB Industrial Bearings (P) Ltd. v. CCE & ST - 2019-TIOL-2594-
CESTAT-MUM, it was held that where a person was appointed as a Managing
Director and salary was paid to him as per MOA and AOA and Forms filed be-
fore ROC has mentioned salary and perquisites payable/paid to the managing
director, then no Service Tax was liable to be paid on such salary paid to manag-

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