2014 (10) TMI 688 - AT - Service Tax

Levy and demand of service tax from the Director of Company - appellant signed the agreement as a Director on behalf of the Company - Held that - Demand of Service tax is confirmed against her when in para 13 of OIO dtd 31/3/2013 contains the stand of the appellant that she is only an operator and company is responsible for payment of service tax. This issue raised by the appellant has neither been deliberated upon by the adjudicating authority nor the first appellate authority under OIA dtd 13/3/2014. It is observed from the contract dated 1/4/2012 entered between BPCL and M/s Bombay Garage (Rajkot) Pvt Ltd that Ms Bhavna Jayantibhai Desai is signing on behalf of the M/s Bombay Garage (Rajkot) Pvt Ltd as a Director which is confirmed in her statement dated 12/9/2012 stating that she is receiving a salary of ₹ 25000/- per month for rendering services and is not required to pay any service tax. As the issue involved in the present proceedings lies in a narrow compass, therefore, after allowing the stay application, appeal is taken-up for disposal - appellant signing the contract as the Director of the Bombay Garage (Rajkot) Pvt. Ltd. cannot be held as the service provider. Therefore, no demand can be confirmed against the present appellant when the original show cause notice dated 20/9/2013 was issued to M/s Bombay Garage (Rajkot) Pvt. Ltd, Rajkot and by no stretch of imagination it can be considered that the Director of a Pvt. Ltd company is the service provider in the present case - Decided in favor of assessee.

Summary

Issues:
Appeal against OIA, Service tax liability of Director, Interpretation of service contract, Responsibility for payment of service tax, Proprietorship of M/s Bombay Garage (Rajkot) Pvt Ltd.

Analysis:
The appellant filed an appeal against OIA No. RJT-EXCUS-000-APP dated 13/3/2014, arguing that in earlier proceedings, demands were wrongly confirmed against her as the proprietor of M/s Bombay Garage (Rajkot) Pvt Ltd. The appellant contended that she is only a Director of the company, earning a fixed salary, and not liable for the service tax demanded. The Revenue, represented by Shri G P Thomas, claimed that the service contract between Bharat Petroleum Corpn Ltd (BPCL) and the appellant holds her responsible for the service tax payment. The Tribunal examined the case records and noted discrepancies in the Show Cause Notice, where the company was referred to as the 'Noticee' and called upon to show cause, not the appellant. The Tribunal observed that the appellant signed the contract as a Director of the company and cannot be considered the service provider. Therefore, the demand against the appellant was unjustified, and the appeal was allowed, setting aside the order of the first appellate authority dated 13/3/2014.

This judgment primarily dealt with the issue of the appellant's liability for service tax as the Director of M/s Bombay Garage (Rajkot) Pvt Ltd. The Tribunal emphasized that signing a contract as a Director does not automatically make the individual the service provider. The Tribunal scrutinized the Show Cause Notice and found that it did not call upon the appellant to show cause, indicating a lack of clarity regarding the appellant's role in the proceedings. The Tribunal concluded that the appellant, in her capacity as a Director, cannot be held responsible for the service tax liability of the company, especially when the original notice was issued to the company, not the appellant individually. This analysis highlights the importance of distinguishing between the roles and liabilities of company directors and the company itself in tax matters.

Furthermore, the judgment addressed the interpretation of the service contract between BPCL and the appellant. The Revenue argued that the contract explicitly assigned the responsibility of service tax payment to the appellant. However, the Tribunal found that merely signing the contract as a Director does not automatically translate to personal liability for the service tax. The Tribunal's analysis focused on the specific language and intent of the contract, emphasizing that legal obligations must be clearly defined and attributed. This aspect of the judgment underscores the significance of precise contractual language in determining individual liabilities within a corporate structure.

Overall, the judgment underscored the fundamental principle of corporate law that distinguishes between the legal entities of a company and its directors. By examining the contractual agreements, the Show Cause Notice, and the roles of the appellant, the Tribunal clarified that the appellant, as a Director, cannot be held personally liable for the service tax obligations of the company. This detailed analysis highlights the importance of legal clarity, proper documentation, and adherence to corporate structures in determining tax liabilities and responsibilities within a corporate framework.