Page 27 - GSTL_6th August 2020_Vol 39_Part 1

2020 ] DIRECTOR’S REMUNERATION UNDER REVERSE CHARGE J9

DIRECTOR’S REMUNERATION UNDER REVERSE CHARGE
DIRECTOR’S REMUNERATION UNDER
REVERSE CHARGE — BOARD’S CLARIFI-
CATION
DIRECTOR’S REMUNERATION UNDER REVERSE CHARGE
By
CA Preeti Parihar

Introduction
Reverse charge on services provided by Director
to company have been a matter of litigation right from the
beginning. It was introduced in Service Tax regime and is
carried forward to GST regime. However, due to the fact that there are variety of
directors like whole time directors and part time directors, and multiple names
are given to considerations paid to them, like salary, remuneration, incentives,
etc.; it has been disputed as to on which amounts is reverse charge applicable.
One recent advance ruling was given in case of Clay Craft India Private Limited
[RAJ/AAR/2019‐20/33] [2020 (35) G.S.T.L. 580 (A.A.R. - GST - Raj.)] wherein it
was ruled that irrespective of fact that the salary is paid to directors, it will still
be liable to tax under reverse charge. Since then the issue ignited and now Board
has come up with a clarification in this regard on 10-6-2020. This article delves
into the issue, studying the reasons of dispute and analyses the Board’s Circular.
Analysis of legal provisions
 Notification No. 13/2017-C.T. (Rate), dated 28-6-2017 :-
Entry No. 6 of Notification No. 13/2017-C.T. (Rate), dated 28-6-2017
states that reverse charge will be applicable on the services provid-
ed by directors to company. This entry reads as follows :-

Sl. Description of Supplier of Recipient of service
No. services service
6 Services supplied by A director of a The company or a
a director of a com- company or a body corporate locat-
pany or a body cor- body corporate ed in taxable territory
porate to the said
company or the body
corporate

The analysis of Entry No. 6 makes it clear that it uses the word “Di-
rector” rather than whole time director or part time director. Thus,
it covers all types of directors irrespective of their designation and
functions. Therefore, as per this entry services provided by any di-
rector to its company or body corporate located in India will be lia-
ble to tax under reverse charge.
 Schedule III to CGST Act, 2017
Entry No. 1 of Schedule-III states that services provided by an em-
ployee to his employer in course of his employment will be treated
neither as supply of goods nor supply of service. When an activity is

GST LAW TIMES  6th August 2020  27