Page 33 - GSTL_11th June 2020_Vol 37_Part 2

2020 ] GST ON DIRECTOR’S REMUNERATION — A CRITICAL ANALYSIS J41

GST ON DIRECTOR’S REMUNERATION —
A CRITICAL ANALYSIS
By
K. Vaitheeswaran
CONSULTANT - GST & CUSTOMS

The Government of India, vide Notification No.
13/2017-C.T. (Rate), dated 28-6-2017 and other notifica-
tions (Sl. No. 6) had specified the services of Director of a
Company for payment of GST under RCM, extracted
below :

6 Services supplied by a direc- A director of a The company or a
tor of a company or a body company or a body corporate
corporate to the said compa- body corporate located in the taxa-
ny or the body corporate ble territory

At the same time, Sl. No. 1 of Schedule-III, state that the services of employee to
employer is neither a supply of goods nor supply of services. The same is extracted
below :
“SCHEDULE-III
[See Section 7]
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER
AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to
his employment.”
The moot point is whether the remuneration paid to a Director could be construed
as service of an employee to employer. If the answer is yes, then no GST would be
payable as it will be out of the purview of the scope of ‘supply’ itself.
The payment of GST on Salaries/Remuneration paid to Director’s have
been the matter of contention before the Authority for Advance Ruling recently
in following matters.
(1) The Authority for Advance Ruling (AAR), the AAR - Karnataka, in
the case of 2019 (30) G.S.T.L. 678 (A.A.R. - GST) in Re : Alcon Con-
sulting Engineers (I) Pvt. Ltd. (Advance Ruling No. KAR ADRG
83/2019, dated 25-9-2019), it was held that GST is payable on Direc-
tor’s remuneration.
(2) In the 2nd Ruling by Authority for Advance Ruling (AAR) - Raja-
sthan in the case of M/s. Clay Craft India Pvt. Ltd. vide Order No.
RAJ/AAR/2019-20/33, dated 20-2-2020, the AAR had held that
GST is payable on Director’s Remuneration.
The issue of taxability of the director’s remuneration is not a new issue and was
debated in Service Tax regime as well, wherein the Departmental authorities treat-
ed MDs/Directors as owners of the company and therefore, were not to be con-
strued as employees and therefore, the remuneration paid to them is not salary.

GST LAW TIMES  11th June 2020  33