Page 35 - GSTL_11th June 2020_Vol 37_Part 2

2020 ] GST ON DIRECTOR’S REMUNERATION — A CRITICAL ANALYSIS J43
the Tribunals have paid emphasis on the existence of employer and employee
relationship while deciding the taxability on the director’s remuneration :
(a) NRB Industrial Bearings Pvt. Ltd. v. CCE & ST, Aurangabad - 2019 (8)
TMI 600-CESTAT Mumbai
(b) M/s. Brahm Alloy Limited v. Commissioner of CGST & Central Excise,
Durgapur, 2019 (4) TMI 1537-CESTAT Kolkata
(c) M/s. Maithan Alloys Ltd. v. CCE & ST, Bolpur - 2019 (4) TMI 1595-
CESTAT Kolkata
In the light of the above judicial pronouncements, the presence of the following
factors would determine the existence of employer and employee relationship.
(1) There is an employment contract entered into between Director and
the company clearly defining roles and responsibilities, terms of the
appointment, terms of the remuneration, terms of the termination,
the person to whom director would report.
(2) The Director is paid a salary on a monthly basis. The component of
salary can be in monetary as well in non-monetary, can be fixed as
well variable pay.
(3) Supervisory aspect is important, i.e., MD/WTD is accountable for
his performance and will be under the supervisory control of anoth-
er person i.e. Board of Directors of the Company.
(4) Treatment under Income-tax Act - if treated as Salary, TDS deduc-
tion under Section 92 and Form 16 issued and in ITR of Directors,
disclosed as Salary Income
(5) Treatment under other laws like Provident Fund, Professional Tax,
ESIC, etc. - whether declared as an employee or not.
(6) Necessary Orders, Contracts, Board Resolutions, etc. to reiterate
Employer-Employee Relationship and salary paid.
Though the Ruling by AAR is only with regard to the Applicant who had filed the
application to AAR and not binding on others, the Audit, as and when it happens
eventually, will always demand the GST on all remuneration paid to directors.
Suggestion
There are Two Options open and they are, -
(1) Pay the GST on such Salaries paid to Directors under RCM in cash
and avail the ITC based on payment challens and thus, it is revenue
neutral situation; or
(2) Take necessary precautions to establish employer-employee rela-
tionship under Companies Act, Income Tax, Provident Fund Act,
ESI Act, etc. and contest the issue and when the same is agitated.
The issue may lead to litigation inviting interest and penalty apart
from legal costs.

_______

GST LAW TIMES  11th June 2020  35