2024 (9) TMI 1416 - AT - Service Tax

Liability to pay Service Tax under reverse charge mechanism - Directors remuneration paid to the whole time Director who are employed with the company and also non employed Directors to whom the sitting fees is paid. Salary paid to the whole time director whether liable to service tax or otherwise - HELD THAT - This issue has been considered time and again by this Tribunal and came to the conclusion that when any remuneration is paid to the Director which is in the form of the salary the same is not liable to service tax. The issue is covered by the decision of RATNAMANI METALS AND TUBES LTD VERSUS C.C.E. S.T. -AHMEDABAD-III 2024 (3) TMI 10 - CESTAT AHMEDABAD wherein relying on various judgments, this Tribunal has held that 'In the light of the records submitted by the Appellants, in terms of Board Resolution and Income tax returns submitted under Form 16, we are of the considered view that the Directors have been appointed as employees of the Appellant s Company.' - In view of the above decision, in case of whole time Director Mrs. T R Amin remuneration paid to her is not liable to service tax. Hence the service tax related to the remuneration paid to Mrs. T R Amin is set aside. Levy of service tax on director fees - payment made to non-employed director as a director sitting fees since the same is not in the nature of salary - HELD THAT - As per the reconciliation chart, it prima facie appears that the appellant have discharged the Service Tax. However the same need to be verified by the Adjudicating authority. Therefore, the matter related to the service tax demand on the remuneration paid to the non-employed directors, the matter needs to be remanded to check the correctness of reconciliation given in the Annexure-C. The impugned order is modified - Appeal allowed.

Summary

Issues:
1. Liability of service tax under reverse charge mechanism on directors' remuneration.

Analysis:
The judgment by the Appellate Tribunal CESTAT Ahmedabad addressed the issue of whether the appellant is liable to pay Service Tax under reverse charge mechanism on the remuneration paid to whole-time and non-employed directors. The appellant argued that remuneration paid to the whole-time director, treated as salary for income tax purposes and subject to TDS, is not liable to service tax. This argument was supported by a previous Tribunal decision in the case of Ratnamani Metals and Tubes Ltd. The Tribunal agreed that when remuneration is in the form of salary to a director, it is not subject to service tax. The Tribunal cited various judgments and upheld the appellant's position regarding the remuneration paid to the whole-time director, setting aside the service tax related to that payment.

Regarding the remuneration paid to non-employed directors as sitting fees, the appellant acknowledged the service tax liability and provided a reconciliation chart to demonstrate payment. However, due to a lack of proper co-relation, the Tribunal remanded the matter to verify the correctness of the reconciliation provided. The Tribunal modified the impugned order to address this issue, allowing the appeal in part. The judgment emphasized the importance of verifying the payment of service tax on remuneration paid to non-employed directors, ensuring compliance with tax obligations.

In conclusion, the judgment clarified the liability of service tax on directors' remuneration under reverse charge mechanism, distinguishing between remuneration paid to whole-time and non-employed directors. It highlighted the significance of proper documentation and compliance with tax regulations to avoid disputes and ensure accurate payment of service tax. The Tribunal's decision provided a nuanced analysis of the issues raised by the appellant, ultimately setting aside the service tax related to remuneration paid to the whole-time director while remanding the matter for verification regarding the payment to non-employed directors.