Page 22 - GSTL_16th July 2020_Vol. 38_Part 3

J64 GST LAW TIMES [ Vol. 38
sion of the Tribunal in 2019 (24) G.S.T.L. 207 (Tri. - Mumbai) (Allied Blenders and
Distillers Private Limited v. C.C.E. & S.T., Aurangabad) wherein the Tribunal when
considering an identical question, came to the conclusion that the directors were
employees of the company and hence Service Tax was not leviable on the value
of the consideration paid to the directors by the company. The Tribunal was con-
sidering the issue arising in the context of levy of Service Tax on reverse charge
basis.
Under the Finance Act, the definition of service excluded the provision
of service by an employee to the employer in the course of or in relation to his
employment. There was also a Notification No. 30/2012, dated 20th June, 2012
whereby the company was required to pay Service Tax on reverse charge basis
on the value of services provided by the director to the company. The Tribunal
held that the directors were employees of the company and hence Service Tax
cannot be imposed. It was found by the Tribunal that with regard to the direc-
tors, the company had made deductions on account of provident fund, profes-
sional tax and TDS as applicable to an employee of the company. The Tribunal
also found that in the salary return filed by the company with the income tax
authorities, the names of the directors had been included. It was found that the
company did not pay any sitting fee to the directors. It was established that the
directors were involved in the day-to-day functioning of the company and did
not participate only in the board meetings.
The Tribunal seems to have made a distinction between directors who
are involved in the day-to-day functioning of the company and directors who
attend only board meetings. This decision of the Tribunal has not been brought
to the notice of the advance ruling authorities.
The Tribunal had referred to a decision of the Supreme Court reported in
(1972) 2 SCC 696 (Ram Pershad v. CIT). The Supreme Court was considering the
question as to whether the director of a company can be regarded as an employ-
ee of the company. The Supreme Court held that person who is engaged to man-
age a business may be a servant or an agent according to the nature of service
and the authority of is employment. The nature of the particular business and the
nature of the duties of the employee will be required to be considered in each
case in order to arrive at a conclusion as to whether the person employed is a
servant or an agent.
The Court further held that the control which the company exercises
over the person need not necessarily be one which tells him what to do in day-to-
day activities. That would be too narrow a way to test the character of the em-
ployment. Nor the supervision implies that it should be a continuous exercise of
the power to oversee the work to be done. The control and supervision in such
cases is exercised in terms of the articles of association by the board of directors
and the company in its general meeting. As a managing director of the company,
he also functions as a member of the board of directors whose collective deci-
sions he has to carry out in terms of the articles of association and he can do
nothing which is not permitted to do.
Every power which is given to the managing director therefore emanates
from the articles of association which describes the limits of the exercise of that
power. The powers of the directors have to be exercised within the terms and
limitations prescribed and subject to the control and supervision of the board of
directors, which in view of the Court, indicates that the director is a servant of
the company.
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