Page 24 - GSTL_3rd September 2020_Vol 40_Part 1

J6 GST LAW TIMES [ Vol. 40
GST is leviable on such activities as they do not fulfil the condition of being a
supply to be charged under Section 9 of CGST Act. In terms of the relevant entry
under the said Schedule-III, the services provided by the employee to the employer in the
course of or in relation to his employment is kept out from the purview of GST applicabil-
ity. On the backdrop of the aforesaid provision, the question that has been haunt-
ing the trade is, whether remuneration paid to director by the company is levia-
ble to GST?
Meanwhile, the conflicting decisions made by the AARs across the coun-
try led to confusion and uncertainty on the trade in respect of the issue of ap-
plicability of GST on the remuneration paid by a company to the director. One
such prominent decision of Rajasthan AAR in the matter of M/s. Clay Craft India
Pvt. Ltd. - 2020 (35) G.S.T.L. 580 (A.A.R. - GST - Raj.) created much uproar in the
trade. In the aforesaid matter, it was decided that the remuneration paid to direc-
tors in relation to services provided by them to company not covered under
clause (1) of the Schedule-III to CGST Act, 2017 as directors not being the em-
ployee of the Company, liable to tax under reverse charge mechanism in terms of
Serial No. 6 of Notification No. 13/2017-C.T. (Rate) and Section 9(3) of CGST Act,
2017. On the contrary, in the matter of Anil Kumar Agrawal [2020 (36) G.S.T.L. 596
(A.A.R. - GST - Kar.)] a differing view was taken by the Karnataka AAR. The
aforesaid difference in opinion in deciding the cases on the instant issue has cre-
ated havoc in the trade resulting in instability and ambiguity to the hilt.
In the light of the above scenario, the trade and industry sought clarifica-
tion from the Government in order to attain clarity on the issue. The C.B.I. & C.
finally issued Circular No. 140/10/2020, dated 10-6-2020 [2020 (37) G.S.T.L. C10] in
order to clarify the GST applicability on the remuneration of director. The said
circular provides clarification based on the following two parameters;
 Leviability of GST on remuneration paid by companies to the inde-
pendent directors defined in terms of Section 149(6) of the Compa-
nies Act, 2013 or those directors who are not the employees of the
said company; and
 Leviability of GST on remuneration paid by companies to the
whole-time directors including Managing Director who are em-
ployees of the said company.
It is clarified that directors who are not the employees of the company, the services
provided by them to the Company, in lieu of remuneration as the consideration for
the said services, are clearly outside the scope of Schedule-III of the CGST Act.
Thus, it is clarified that the remuneration paid to such independent directors, or
these kind of directors, who are not employees of the said company, is taxable in
hands of the company, on reverse charge basis.
On the other hand, in respect of GST applicability on remuneration paid
by companies to the directors, who are also an employee of the said company,
the instant circular premised its position paying reliance on the relevant provi-
sion of the Income-tax Act. Specifically, the manner of determination is placed on
tax deduction at source provisions (‘TDS’) under the Income-tax Act, 1961.
Accordingly, it is clarified that the portion of directors’ remuneration declared as
‘salaries’ in the books of the company, and subjected to TDS under Section 192 of
the Income-tax Act, would be treated as consideration for services by an employ-
ee to the employer in relation to his employment as per Schedule-III of the CGST
Act, 2017 and such services are not liable to tax under GST.
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GST LAW TIMES  3rd September 2020  40