2024 (1) TMI 982 - AT - Central Excise

Input Tax Credit - Eligibility for Service Tax credit - commission paid to its directors, as per the company s board resolution - case of the Revenue is that the commission paid to directors is nothing but a commission paid to commission agent, hence the credit is not available to the appellant - HELD THAT - From Circular No. 115/9/2009-ST dated 31.07.2009, it was categorically clarified that even if any amount paid to the director as a commission, the said amount paid by a company to their directors is not commission within the scope of Business Auxiliary Services . With this clarification also, it is clear that payment made to directors even under the nomenclature of commission, the same is not the commission classifiable under Business Auxiliary Services . Therefore, in our view the said commission is part of remuneration paid to the directors, hence not a sales commission. Accordingly, the same is eligible for Cenvat Credit to the appellant. This issue has been elaborately considered by this Tribunal in the case of M/S. RANE BRAKE LINING LTD. VERSUS COMMISSIONER OF GST CENTRAL EXCISE 2018 (7) TMI 611 - CESTAT CHENNAI , wherein the Tribunal has held that it is the duty of the director to attend the meetings and therefore the service tax paid on such fees is eligible for credit. Thus, the appellant is legally entitled for the Cenvat credit in respect of the Service Tax paid on commission paid to the directors - the impugned order is set aside - appeal allowed.

Summary

Issues involved:
The issue involved in the present case is whether the appellant is eligible for Service Tax credit on commission paid to its directors, as per the company's board resolution.

Summary:

Issue 1 - Eligibility for Service Tax credit on commission paid to directors:
The appellant contended that the directors are not commission agents but are entitled to a share in the profit as remuneration, referred to as commission. The appellant argued that the commission paid is a form of remuneration for their directorship in the company, not a sales commission to a commission agent. The appellant cited the company's Article of association, which allows for payment of remuneration to directors, including salary, commission, or participation in profits. The appellant relied on previous judgments to support their position.

Issue 2 - Interpretation of the company's Article of association:
The Tribunal examined the relevant clause in the company's Article of association, which stated that directors may be paid remuneration by way of salary, commission, or participation in profits. The Tribunal noted that the commission paid to the directors was part of the profit earned by the company, as per the board resolution. The Tribunal referenced a circular clarifying that payments to directors, even termed as commission, do not fall under Business Auxiliary Services, confirming that such payments are part of remuneration.

Conclusion:
Based on the discussions and findings, the Tribunal concluded that the appellant is legally entitled to Cenvat credit for the Service Tax paid on commission to the directors. The impugned order was set aside, and the appeal was allowed.