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TMI Blog2024 (6) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 - CESTAT AHMEDABAD] also held that similar remuneration paid to the directors are not liable to Service Tax and demand was set aside and appeal was allowed. It can be seen that the fact being identical in the present case and in the above cited decisions, the ratio of above Judgment are directly applicable and accordingly, the demand is not sustainable - the impugned orders are set aside - Appeal allowed. - HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR AND HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR Shri Prasanman Nambodiri, Advocate for the Appellant Shri Rajesh R Kurup, Superintendent (AR) for the Respondent ORDER RAMESH NAIR The issue involved is whether the appellant is liable to pay Service Tax under reverse charge mechanism on the remuneration (salary+ allowances + commission on profit of company) paid to the directors of the Appellant s Company or otherwise. 2. Shri Prasanan Namboodri, learned Counsel appearing on behalf of the appellant submits that the remuneration paid to the directors are nothing but salary + allowances and commission on profit and the same was under Section 192 of the Income Tax Act and TDS was also deducted under the same head. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 46/2012-S.T., dated 7-8-2012. Revenue s allegation is that the Directors namely, Shri K.R. Chhabria, Shri U.K. Ganguli, Shri Deepak Roy and Shri Jitendra Hemdev, who were paid remuneration during the period July, 2012 to March, 2015 amounting to Rs. 1,01,02,55,057/- by the appellant, Service Tax of Rs. 12,48,67,525/- was required to be discharged by the appellant. Opposing the said contention of the Revenue, the appellant has argued that the amount paid to the said Directors are in the nature of the salary paid to them, since the said Directors are whole time directors and employees of the company, accordingly, it is not a service within the definition of service prescribed under Section 65B(44) of the Finance Act, 1994. 6. In the negative list Service Tax regime brought into effect from 1-7-2012, service has been defined under Section 65B(44) read as follows: - SECTION 65B. Interpretations. - In this Chapter, unless the context otherwise requires, - (44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include - (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 of the Articles of Association, Managing Director and Whole-time Director with such conditions as may deem fit. It reads as follows : - 93. Managing Director/Whole-time Director/Manager. - Subject to provisions of the Act, the Rules framed thereunder and the approval of the Promoter(s), the Board may from time to time, appoint Managing Director/Whole-time Director/Manager for one or more of the divisions of the business carried on by the Company and to enter into agreement with him in such terms and conditions as they may deem fit. Also, the appointed Directors could be removed from their post by the Appellant company as per clause 94 of the Articles of Association which is mentioned as below : 94. Removal of Director. - The Company may by an ordinary resolution remove any Director (not being a Director appointed by the Tribunal in pursuance of Section 242 of the Act) in accordance with the provisions of Section 169 of the Act. A Director so removed shall not be re-appointed a Director by the Board of Directors. 9. All the four Directors were appointed by the resolutions passed by the Board of Directors (BOD). The resolution for Mr. Chabria is as below : Similar resolutions have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractor. Their Lordships analyzing the characteristics of master-servant relationship observed as : 6. There is no doubt that for ascertaining whether a person is a servant or an agent, a rough and ready test is, whether, under the terms of his employment, the employer exercises a supervisory control in respect of the work entrusted to him. A servant acts under the direct control and supervision of his master. An agent, on the other hand, in the exercise of his work is not subject to the direct control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal. But this test is not universal in its application and does not determine in every case, having regard to the nature of employment, that he is a servant. A doctor may be employed as a medical officer and though no control is exercised over him in respect of the manner he should do the work nor in respect of the day to day work, he is required to do, he may nonetheless be a servant if his employment creates a relationship of master and servant. Similar is the case of a chauffeur who is employed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the power to appoint attorneys as the Directors think fit, etc. As pointed out earlier under the terms of the agreement he can be removed within the period of 20 years for not discharging the work diligently or if he is found not to be acting in the interest of the company as Managing Director. These terms are inconsistent with the plea that he is an agent of the company and not a servant. The control which the company exercises over the assessee need not necessarily be one which tells him what to do from day to day. That would be a too narrow view of the test to determine the character of the employment. Nor does supervision imply that it should be a continuous exercise of the power to oversee or superintend the work to be crone. The control and supervision is exercised and is exercisable in terms of the articles of association by the Board of Directors and the company in its general meeting. As a Managing Director he functions also as a member of the Board of Directors whose collective decisions he has to carry out in terms of the articles of association and he can do nothing which he is not permitted to do. Under s. 17(2) of the Indian Companies Act 1913 Regulation No. 71 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the provisions of Companies Act and Regulation of Article of Association of Company for managing day-to-day affairs of the company. Further answering to question No. 4, he has stated that the company are paying them remuneration which is nothing but salary. All the necessaiy deductions on account of Provident Fund, Professional Tax and TDS under Section 192 of the Income Tax Act are made as applicable; also they were issuing Form-16 like it is issued to all other employees. Even in the salary return filed by the appellant company before the Income Tax authorities, the director s names have been included. The company does not pay the director s sitting fee to any of the directors. To discredit the said statement, no contrary evidence was produced by the Revenue to establish that the directors are not involved in the day-to-day function of the Company, but participate only in Board Meetings and consequently paid remuneration. 16. Also, from the documents produced by the appellant it is crystal clear that the Directors who are concerned with the management of the company, were declared to all statutory authorities as employees of the company and complied with the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case is not a sales commission paid to a commission agent but it is a remuneration paid to the directors. This very same issue has been considered by the board in the following Circular No. 115/9/2009-ST dated 31.07.2009 which is reproduced below: Circular No. 115/9/2009-S.T., dated 31-7-2009 Dy. No. 324/Comm (ST)/2008 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject: Service tax on commission paid to Managing Directors/Directors by the company - Regarding Below mentioned issues have been referred to the Board seeking clarifications, - (1) applicability of service tax under 'Business Auxiliary service on commission paid to Managing Directors/Directors (whole time, or Independent) by the company, (ii) applicability of service tax on Independent Directors who are part of the Board of Directors under 'Management Consultant service. 2. Both the matters have been examined by the Board and the clarifications are as under. (i) Some Companies make payments to Managing Directors/Directors (Whole-time or Independent). terming the same as 'Commissions'. The said amount paid by a company to their Managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post-manufacturing activity and the liability arose only when the goods are handed over to the buyers. In fact, as per the explanation given by the appellant, it can be seen that the risk covers the defects with the product. In such cases, when there are defects to the product, the appellant/ manufacturer will have to recall the product and thereby incur huge financial loss. The insurance is for covering the financial loss of the appellant/manufacturer and it cannot be considered as a postmanufacturing activity. The finance / raising a capital or adjustment of finances by way of taking insurance etc. falls within the inclusive part of the definition. This cannot be said to be a post- manufacturing activity for the reason that such insurance policies addresses the financial risks of the manufacturer. Further, in the case of Granules India Ltd. (supra), the Tribunal has held that the credit availed on directors' liability insurance is eligible. I find that the disallowance of credit on this input service is unjustified and requires to be set aside, which I hereby do. 6. The second issue for consideration is regarding the eligibility of credit on service tax paid on Director Sitt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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