Page 23 - GSTL_16th July 2020_Vol. 38_Part 3

2020 ] A DIRECTOR AND HIS GST LIABILITY J65
The Supreme Court in the decision reported in (1998) 1 SCC 86 (Employ-
ees State Insurance Corporation v. Apex Engineering Private Limited) was considering
the question whether a managing director was an employee of the company in
the context of the definition of employee in the Employees State Insurance Act,
1948. The Supreme Court held that the particular person was one of the directors
of the company and was also entrusted with the work of the managing director
on a monthly remuneration and in view of the remuneration he had to discharge
his extra duties as managing director even apart from its functions as an ordinary
director. It was not denied that the duties of a managing director were entrusted
to him in connection with the work of the establishment and for such work
which he would carry out, he was entitled to the remuneration of a managing
director. The Supreme Court was therefore of the view that the managing direc-
tor of the company was an employee of the company for the purpose of the pro-
visions of the Employees State Insurance Act, 1948.
Under Section 7 of the CGST Act when an activity is mentioned in
Schedule-III the Government does not have the power to levy tax on such activi-
ties. The mere fact that there is a notification stating that with regard to the ser-
vices provided by a director the tax shall be paid by the recipient of services does
not automatically mean that a director is not an employee of the company. Noti-
fication only proceeds on the presumption that a director is not an employee of
the company but the presumption is a rebuttable presumption and the exercise
of the power to issue such a notification is subject to the activities mentioned in
Schedule-III.
There is no definition of the term employee or director in the CGST Act.
The term director has been defined in the Companies Act as to mean a director
appointed to the board of a company. This definition is not of much help in un-
derstanding the status of a director of a company. When a person is appointed as
director of a company it is natural that the terms of appointment of such person
as a director will be reduced in writing. Therefore for the purpose of levy of tax
under the CGST Act, the terms and conditions of employment has to be gone
into for deciding the question as to whether the particular director is an employ-
ee of the company or not.
The Companies Act provides for the appointment of independent direc-
tors, nominee directors etc. There seems to be a distinction between directors
who are engaged in the day-to-day functioning of the company and those direc-
tors who attend board meetings only and get paid to attend those meetings. The
latter kind of directors cannot be regarded as employees of the company as they
are not subject to the control and supervision of the board of directors. Such di-
rectors may not fall within the scope of clause (1) of Schedule-III of the CGST
Act. For such kind of persons there can be some justification to apply the notifi-
cation and direct the company to pay tax on reverse charge basis in terms of the
notification.
It cannot be disputed that there is no definition of employee under the
CGST Act and therefore it is necessary to consider how the term has been judi-
cially interpreted before deciding the question. It cannot be disputed that the de-
cisions of the Supreme Court and of the Tribunal are binding on the advance rul-
ing authorities. The advance ruling authorities did not consider the nature of the
work performed by the directors of the company before coming to such a conclu-
sion.
[Continued on page J76]
GST LAW TIMES  16th July 2020  23