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TMI Blog2024 (10) TMI 1342X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors would not be liable to service tax.' Thus, it is settled law that any commission from the profit of the company paid to the director as director remuneration is not liable to the service tax under reverse charge basis. The impugned order is not sustainable, hence, the same is set aside, appeals are allowed. - HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR And HON'BLE MEMBER (TECHNICAL), MR. C L MAHAR Shri Jigar Shah, Advocate with Shri Amber Kumrawat, Advocate appeared for the Appellant Shri Anoop Kumar Mudvel, Superintendent (AR) appeared for the Respondent ORDER RAMESH NAIR The issue involved in the present case is that whether Director s remuneration in the form of commission as per percentage of total profit of the company is liable to service tax under reverse charge basis or otherwise. 2. Shri Jigar Shah, Learned Counsel with Shri Amber Kumrawat, Advocate appearing on behalf of the appellant at the outset submits that this issue is no longer res-integra, in the light of the following judgments:- M/s. Jindal Steel Power Ltd. v. CST 2024 (5) TMI 566-CESTAT-DEL-ST Ratnamani Metals Tubes Ltd. v. CCE ST- Ahmedabad- III 2024 (3) TMI 10-CESTAT AHMEDABAD Supreme Tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided the matter as under:- 5. The short issue involved in the present appeal for determination is whether remuneration paid to the Directors by the appellant is chargeable to Service Tax and the appellants are required to discharge Service Tax under reverse charge mechanism in accordance with Notifications No. 45/2012-S.T., dated 7-8-2012 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 JitendraHemdev, 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he position of the managing director, by whatever name called. 2(94) whole-time Director includes a Director in the whole time employment of the company; Executive Director means a whole time director as defined in clause (94) of Section 2 of the Act. In the present case, the Board of Directors (BOD) are empowered to appoint under clause 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. It was pleaded that for such a relationship to exist, it must be shown that the employee must be subject to the supervision and control of the employer in respect of the work the employee has to do. Where, however, there is no such supervision or control it will be a relationship of principal and agent or an independent contractor. 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 doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent as a Managing Director not being that of an agent. Several of the clauses of Article 140 as pointed out by the High Court specifically empower the Board of Directors to exercise control over the Managing Director, such, for instance to accept the title of the property to be sold by the company, providing for the welfare of the employees, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue inasmuch as during the course of investigation, the statement of Shri Atit Dalai, Vice President (Finance Accounts) of the appellant company was recorded by the investigating officers on 4-6- 2015. Answering the question No. 3. Mr. Dalal informed that there were four directors in the company and they were appointed in accordance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by the company. The company also passed the resolution which is scanned below : From the above board resolution, it can be seen that as per the first resolution sum of Rs. 1 Crore to be paid equally to four directors of the company by way of commission this clearly shows that the commission paid to the director in the fact of the present 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by this Tribunal in the case of M/s Rane Brake Lining Ltd. (Supra), wherein the Tribunal has passed the following order: - 5. The first issue that arises for consideration is whether the appellant is eligible for credit of the service tax paid on product liability insurance. The department has denied the same on the ground that it is 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. (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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