2024 (3) TMI 10 - AT - Service Tax

Levy of service tax - remuneration paid by the Appellant to its directors - reverse charge mechanism - HELD THAT - In the light of the records submitted by the Appellants, in terms of Board Resolution and Income tax returns submitted under Form 16, it is opined that the Directors have been appointed as employees of the Appellant s Company - the matter is no longer res- integra as the same has already been deliberated upon and decided by this Tribunal. The issue has been squarely covered by this Tribunal under similar facts and circumstances. In the case of M/S BENGAL BEVERAGES PVT. LTD. VERSUS CGST EXCISE, HOWRAH 2020 (11) TMI 622 - CESTAT KOLKATA , it was held that the whole-time Director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that the whole-time Director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time Director. We are thoroughly convinced that when the very provisions of the Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences, it leads to the conclusion that those directors are employees of the assessee company. The directors of the Appellant are employees of the Appellant Company and following the judicial discipline on the similar issue, it is held that the impugned order is not sustainable, hence the same is set aside as it is without any merit - appeal allowed.

Summary

Issues involved:
The issue involved in the present case is whether service tax should be levied on the remuneration paid by the Appellant to its directors under reverse charge mechanism or not.

Details of the Judgment:

Issue 1: Interpretation of Company's Act
The Appellant's Advocate argued that the remuneration paid to the directors should not be categorized as a service for the levy of service tax as it is in the nature of salary. The advocate relied on Board resolutions, income tax returns, and CBEC Circular No. 115/9/2009 to support this argument. Several judgments were cited to establish that remuneration paid to directors is akin to salary and not a service subject to service tax.

Issue 2: Employer-Employee Relationship
The Tribunal examined the Board Resolution and income tax returns submitted by the Appellant and concluded that the directors have been appointed as employees of the company. It was noted that the issue had been previously deliberated upon and decided by the Tribunal under similar circumstances. The Tribunal cited relevant portions of judgments to support the decision that remuneration paid to whole-time directors is pursuant to an employer-employee relationship and not subject to service tax.

Conclusion
The Tribunal held that the remuneration paid to the directors of the Appellant company should not be subject to service tax as it is in the nature of salary and falls within the employer-employee relationship. Citing judicial discipline and previous decisions, the impugned order was set aside as without merit, and the appeal was allowed.

This summary provides a detailed overview of the judgment, highlighting the arguments presented by both parties and the Tribunal's decision on the issues involved.