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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 ..... AT AHMEDABAD Supreme Treves Pvt. Ltd. v. CCE & ST 2024 (1) TMI 935-CESTAT AHMEDABAD Gujarat Guardian Ltd. v. CCE, Bharuch 2024 (2) TMI 910- CESTAT AHMEDABAD M/s. Maithan Alloys Ltd. v. CCE & ST, Bolpur 2019 (4) TMI 1595- CESTAT KOLKATA M/s. Allied Blenders & Distillers Pvt. Ltd. v. CCE & ST, Aurangabad 2019 (1) TMI 433-CESTAT-MUM M/s. Rent Works India Pvt. Ltd. v. CCE. Mumbai V 2016 (5) TMI 786- CESTAT MUMBAI Alchemic Organics v. C.C.E. & S.T.- Valsad CESTAT Ahmedabad He also relied upon the recent judgment of this Tribunal in the case of Alchemie Organics Final order No.11348-11349/2024 dated 05.06.2024. 3. Shri Anoop Kumar Mudvel, Learned Superintendent (AR) appearing on behalf of the Revenue, reiterates the findings of the impugned order. 4. We have carefully considered the submissions made by both the sides and perused the records. We find that the limited issue to be decided is that whether the payment made to the directors in the form of commission which is a part of the profit of the company is liable to service tax or otherwise. We find that there is no dispute that director was paid the commission amount as a part of director's remuneration and the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution, or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. 7. The appellants are taking shelter of clause (b) of the definition of 'service'. Advancing the arguments on behalf of the appellant, Ld. Advocate submits that since the relation between the appellant and the four Directors are in the nature of employer and employee hence, no Service T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been passed by the BOD for other Director also. 10. We find that the appellant have placed on record the Form-16 issued by the appellant indicating deduction of income tax at source on the salary paid to each of the Directors. Besides, the appellant had also produced the contribution made to the Employees Provident Fund for each of the Directors, as required in case of other employees under the relevant laws. The statement furnished for all the employees by the Appellant reflects the name of the directors also. Copy EPF Return showing the name Mr. K.R. Chhabria in the list of employees is as below : 11. Similarly, the Form-32 as required to be filed under the Companies Act, with the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to drive the car for his employer. If he is to take the employer or any other person at his request from place 'A' to place 'B' the employer does not supervise the manner in which he drives between those places. Such examples can be multiplied. A person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. Generally it may be possible to say that the greater the amount of direct control over the person employed, the stronger the conclusion in favour of his being a servant. Similarly the greater the degree of independence the greater the possibility of the services rendered being in the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous 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 Table A which enjoins that the business of the company shall be managed by the directors is deemed to be continued in the articles of association of the company in identical term or to the same effect. Since the Board of Directors are to manage the business of the Company they have every right to control and supervise the assessee's work whenever they deem it necessary. Every power which is given to the Managing Director therefore emanates from the articles of association which prescribes the limits of the exercise of that power. The powers of the assessee have to be exercised within the terms and limitations prescribed thereunder and subject to the control and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor'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 of the respective Acts, Rules and Regulations indicating the Director as an employee of the company. No contrary evidence has been brought on record by the Revenue to show that the Directors, who were employee of the appellant received amount which cannot be said as ' salary' but fees paid for being Director of the company. The Income Tax authorities also assessed the remuneration paid to the said directors as salary, a fact cannot be ignored. The judgments cited by the revenue cannot be applied to the present case as the facts are different and the finding of Income tax authorities accordingly also different in the said case. 17. In these c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifications, - (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 Director/Directors (Whole-time or Independent) even if termed as commission, is not the 'commission' that is within the scope of business auxiliary service and hence service tax would not be leviable on such amount. (ii) The Managing Director/Directors (Whole-time or Independent) being part of Board of Directors perform management function and they do not perform consultancy or advisory function. The definition of management consultant service makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Sitting Fees. The said issue is covered by the decision in the case of SKN Organics P. Ltd. (supra). Further, it is also to be stated that it is the duty of the director to attend the meetings and therefore the service tax paid on such fees is eligible for credit. 7. From the discussions made above, I am of the view that the disallowance of credit on the impugned services is incorrect and requires to be set aside, which I hereby do. The impugned order is set aside and the appeal is allowed with consequential relief, if any." In view of the above discussions an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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