2024 (2) TMI 910 - AT - Service Tax

Taxable service or not - providing commission on profit to one of the directors - existence of employer/employee relationship or not - adjudicating authority has not considered the submissions made by appellant at the time of adjudication - non-speaking order - violation of principles of natural justice - HELD THAT - The matter is no longer res-Integra as this Tribunal in the case of M/S BENGAL BEVERAGES PVT. LTD. VERSUS CGST EXCISE, HOWRAH 2020 (11) TMI 622 - CESTAT KOLKATA has held 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. Since, the facts and circumstance of the present case are akin to, the above mentioned decision of this Tribunal and therefore same is squarely applicable in the present case also. The impugned order-in-original is without any merit and is set aside - appeal allowed.

Summary

Issues Involved:
1. Whether commission on profit paid to a director is liable for service tax under the Finance Act, 1994.
2. Whether the relationship between the company and the director amounts to an employer-employee relationship for the purpose of service tax liability.

Summary:

Issue 1:
The appellant, engaged in the manufacture of Float Glass, paid commission on profit to a director. The department contended that this activity falls under the purview of service tax as per Section 65B(44) of the Finance Act, 1994. A show cause notice was issued demanding service tax, interest, and penalty. The adjudicating authority confirmed the charges. The appellant appealed against this order.

Issue 2:
The appellant argued that the adjudicating authority did not consider their submissions, leading to a non-speaking order. The authority concluded that the director was not a permanent employee, therefore, the commission on profit was taxable. The appellant contended that the nature of employment, whether temporary or permanent, does not affect the employer-employee relationship for service tax purposes. They cited relevant provisions of the Companies Act, 1956, and Income Tax Act to support their argument. The appellant also referenced previous decisions to strengthen their case.

In the judgment, the Tribunal referred to a previous case involving remuneration in the form of commission to whole-time directors. It held that whole-time directors are considered employees under the Companies Act, and the payment of remuneration establishes an employer-employee relationship. The Tribunal found this precedent applicable to the current case and set aside the impugned order-in-original, ruling in favor of the appellant.

This judgment clarifies the treatment of commission on profit paid to directors in relation to service tax liability and emphasizes the significance of the employer-employee relationship in determining tax obligations.