2021 (5) TMI 832 - AT - Service Tax

Levy of service tax - remuneration paid by a company to the Managing Director and the whole time Executive Director - salaries or not - Managing Director and whole time Executive Director of the appellant company - employees or not - scope of Service under section 65B(44) of the Finance Act, 1994 - HELD THAT - The Learned Commissioner despite the submission of the appellants that the remuneration paid by the appellants to the managing director and the executive director of the company was shown as Salary and declared in Form- 16 which is a income tax return for the salary income decided that the remuneration paid is not a salary but directors remuneration. Therefore, the same is liable to service tax in the hands of the appellant - though in the Income tax return the remuneration was declared as salary income but it is a self declaration. However, whether such income is a salary income or otherwise the same can be established on the basis of employment conditions for employment of directors as company s employees. In the entire proceedings the appellant have not produced the appointment order of the directors as employees containing the terms and conditions of the employment. The matter needs to be reconsidered taking into account not only the position of income tax but also on the basis of terms and conditions of the employment - appeal allowed by way of remand.

Summary

Issues:
1. Whether service tax is chargeable on the remuneration paid to the Managing Director and Executive Director.
2. Whether the Managing Director and Executive Director are considered employees of the company, and if the remuneration paid to them falls outside the definition of "Service" under section 65B(44) of the Finance Act, 1994.

Analysis:
1. The appellant argued that both directors are employees of the company and were paid salary, supported by Form-16 showing remuneration as salary income with TDS deductions. Citing precedents from Kolkata and Bombay benches, the appellant contended that directors' remuneration, including bonus and allowances, constitutes salary not subject to service tax. The appellant emphasized that the remuneration details were disclosed in audited accounts, challenging the sustainability of the impugned order. Additionally, the appellant asserted the demand was time-barred, as all relevant remuneration details were transparent.

2. The Authorized Representative for the revenue reiterated the impugned order's findings, supported by detailed written submissions and case laws. Despite the appellant's salary declaration in Form-16, the Commissioner classified the remuneration as directors' remuneration subject to service tax. The absence of employment terms and conditions for the directors led to ambiguity regarding their status as employees, crucial in determining the nature of the remuneration. The Authorized Representative highlighted the pending status of similar issues in the Hon'ble Supreme Court, indicating the need for a holistic reconsideration based on employment terms.

3. Upon reviewing both parties' submissions and records, the Tribunal noted the discrepancy between the salary declaration in income tax returns and the absence of employment terms clarifying the directors' status as employees. The Tribunal emphasized the importance of considering employment conditions to ascertain the nature of remuneration. Referring to the pending Supreme Court case, the Tribunal directed a remand to the adjudicating authority for a fresh de-novo order, stressing adherence to natural justice principles and potential implications of the forthcoming Supreme Court judgment on similar issues. All other matters were left open for further consideration.

In conclusion, the appeals were allowed for remand, emphasizing the need for a fresh order based on a comprehensive assessment of employment conditions and potential Supreme Court rulings, ensuring a just resolution in accordance with legal principles.