2019 (4) TMI 1537 - AT - Service Tax

Demand of service tax - Reverse charge - Directors of the appellant company have been receiving remuneration - employer - employee relationship - HELD THAT - To establish the employer - employee relationship, the clause of hiring and firing are an essential ingredient without which it cannot be construed whether the individual is the Promoter/Director or an employee Director. The remuneration cheque has to be paid on a month to month basis along with the admissible perquisites. There is a deviation in the facts of the present case. Also, Directors have shown the remuneration under the head Salary in the respective Income Tax Return and Tax was deducted at source by the appellant company on such payments. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Liability of service tax on remuneration paid to directors.
2. Establishment of employer-employee relationship between company and directors.

Analysis:
1. The case involved a dispute regarding the liability of service tax on remuneration paid to directors of the appellant company. The Department alleged that service tax is leviable on the services provided by directors to the company as per relevant notifications and provisions. The Adjudicating Authority confirmed a demand of &8377; 26,40,000/- paid as remuneration to directors, along with service tax and penalties. On appeal, the Learned Commissioner modified the order, confirming the service tax demand only on director's remuneration for specific financial years, reducing the amount to &8377; 12 Lakhs, leading to the appeal before the Tribunal.

2. The appellant contended that a circular by CBSE clarified that the mode of payment to directors does not alter the employer-employee relationship. The Tribunal examined the ledger copy of director's remuneration, which showed payments on a quarterly basis, unlike the usual monthly basis. The appellant submitted a certificate from a Chartered Accountant affirming the whole-time director status of certain individuals and the monthly payment of remuneration. However, the Tribunal emphasized the importance of establishing a clear employer-employee relationship, including terms of appointment, duties, termination clauses, and monthly payment of remuneration with perquisites. It noted discrepancies in the case, such as the deviation from standard practices and the directors being categorized as employees in income tax returns.

In conclusion, the Tribunal upheld the lower authorities' decision, dismissing the appellant's appeal. The judgment highlighted the necessity of a robust employer-employee relationship framework to determine the nature of remuneration paid to directors and emphasized adherence to standard practices and legal requirements in such matters.