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TMI Blog2020 (4) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... f reverse charge basis as provided under Notification No. 13 /2017- Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the Central Goods and Services Tax Act, 2017. Situation will remain same in case the Director also is a part time Director in other company also, and will attract GST under reverse charge mechanism. - RAJ/AAR/2019-20/33 - - - Dated:- 20-2-2020 - J.P. MEENA AND HEMANT JAIN MEMBER Present for the applicant: Shri Madhu Sudan Sharma (Authorised Representative) Note: Under Section 100 of the CGST/RGST Act, 201 7, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order. At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated at par with any other employee of the company as far as their employment is concerned. The company is deducting TDS on their salary and PF laws are also applicable to their service. Therefore, in all practical purposes these directors are the employees of the company and are working as such besides being Director of the company; 1.5 that recently certain facts events have taken place which have made the applicant to reconsider the situation afresh; The first one which has come to the knowledge of the applicant is the decision by the Hon ble Authority of Advance Ruling, Karnataka (Bangaluru) given in the case of M/s. Alcon Consulting Engineers (India) Pvt. Ltd. Bangluru (AR No. KAR ADRG 83/2019) dated 25.09.2019 (Copy enclosed). In this ruling the Hon'ble Authority of Advance Ruling has in para 5 ruled as under: Regarding the remuneration to the Directors paid by the applicant, the services provided by the Directors to the Company are not covered under clause (1) of the Schedule III to the Central Goods and Services Tax Act, 2017 as the Director is not the employee of the Company. The consideration paid to the Director is in relation to the services provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice provided by them in the capacity of a Director; 1.9 That we further submit that the salary being paid to our Directors is being booked under Income from Salary by the Directors in their personal Income Tax returns; 1.10 That in such circumstances a doubt has arisen about applicability of Reverse Charge Mechanism on the salary paid to the Directors of our company who are also working as Directors as employee and having been treated as an employee at par with other employees; 1.11 That it is submitted that services provided by an employee to his employer are under clause 1 of the Schedule Ill which relates to the activities which are not treated either as supply of Services or Goods. Applicant submits that recently it has also been reported in press that salaries given to CEO and employees is not liable for GST. We would like to refer an article published in the economic times which state as under: MUMBAI : The government is looking to clarify that goods and services tax (GST) should not be applicable on salaries of chief executives sitting in head offices, two people in the know said. 1.12 that this comes after the tax department started raising queries on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as- (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. 1.19 that further entry No. I of Schedule III to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarified by DCA vide letter no. 2/19/63- PR dated 29.06.1964 (copy enclosed) which provided that a employee of a company also appointed as a director of the company is in the position of director. Therefore conversely any director working as whole time director would be legally at par with an employee; 1.28 Applicant further submits that section 2(24) (copy enclosed) of the Companies Act, 1956 makes it clear and reads as under: Section 2(24) manager means an individual (not being the managing agent) who, subject to the superintendence, control and direction of the Board of directors, has the management of the whole, or substantially the whole, of the affairs of a company and includes a director or any other person occupying the position of a manger, by whatever name called, and whether under a contract of service or not; 1.29 Also, section 2(26) of the Companies Act, 1956 (copy enclosed) states as under; Section 2(26) managing director means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors, or by virtue of its memorandum or articles of association, is entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remuneration or may be paid such remuneration (whether by way of salary, commission or participation in profit of partly in one way and partly in another) as the Directors may determine. 1.36 that more over the applicant rely in the case of Regional Director, E.S.I. .. vs Sarathi Lines (P) Ltd. on 29 January, 1997 (1998) ILLJ 28 Ker the Hon'ble High Court of Karnataka has held as under: Para 4. We find it not possible to agree with the wide proposition of law put forward by the Employees Insurance Court that treating a person who is a Managing Director of a company as an employee is not justified at all under any circumstances. The question that has to be examined is whether, in this particular case, the Managing Director who is admittedly receiving a remuneration of ₹ 500/- p.m. would come within the definition of 'employee' under the Employees' State Insurance Act, 1948 (hereinafter referred for short 'the Act'). Unlike in the case of the partner receiving remuneration it cannot be said that a Director or Managing Director of a Company owning the factory or establishment can never be an employee also. The term employee is defined under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al provisions and the article of association and Memorandum of Association of the applicant it is amply clear that in our case it is the Board of Director who appoints the Director and other whole time director and once it is admitted that there is an appointment then it is obvious that there exist a relationship of employer and employee between the Board of Director and Managing Director/ Wholetime Director. 1.39 The existence of employer-employee relationship must put to rest the doubt that the salary and other allowance (such as travelling, medical etc.) paid to the Director and Director are in the form of salary and thus is covered under the entry No. 1 of the Schedule III of the C.G.S.T. Act, 2017. 1.40 Thus finally applicant is of the opinion that the salary and other benefits paid to our directors and Director is not taxable under C.G.S.T. Act, 2017 and consequently there is no liability cast upon the applicant to pay GST under reverse charge mechanism as envisaged under entry no. 6 of Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 entry no. 7 of Notification No. 10/2017-Integrated Tax (Rate) dated 28th June 2017. 2. QUESTIONS ON WHICH THE ADV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 4 6 Services supplied by a Director of a company or a body corporate to the said company or the body corporate A director of a company or a body corporate The company or a body corporate located in the taxable territory In this case, the company is located in the taxable territory and the Directors' remuneration is paid for the services supplied by the Director to the applicant company and hence the same is liable to tax under reverse charge basis under section 9(3) of the Rajasthan Goods and Services Tax Act, 2017. 5 FINDINGS. ANALYSIS CONCLUSION: 5.1 While going through the detailed submission by the applicant we observe that presently there are six Directors in the company and all of them working at different level of management and each one of them is holding charge of procurement of raw material, production, quality checks, dispatch, accounting etc. 5.2 We further observe that Consideration in form of salary and commission paid to the Directors by the company is against the services provided by them to the company and the company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice Recipient of Service 1 2 3 4 6 Services supplied by a Director of a company or a body corporate to the said company or the body corporate A director of a company or a body corporate The company or a body corporate located in the taxable territory 5.8 We further observe that consideration paid to the Directors is against the supply of services provided by them to the applicant company and are not covered under clause (1) of the Schedule Ill to the CGST Act, 2017 as the Directors are not the employee of the Company. In the instant case Director is the supplier of services and the applicant company is the recipient of the services. So it is very clear that the services rendered by the Director to the company for which consideration is paid to them in any head is liable to pay GST under RCM. 5.9 We also observe that the applicant company is located in the taxable territory and the Director's consideration is paid for the supply of services by the Directors to the applicant co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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