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TMI Blog2025 (2) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is also not the case of the adjudicating authority that the whole-time directors were being remunerated with sitting fees in addition to contractual compensation. The additional tax liability has been fastened after the 'negative list regime' was made operational and influenced, unduly so, by the definition of 'person liable for paying the service tax' in Service Tax Rules, 1994 which is nothing but a machinery provision stemming from statutory delegation under section 68 of Finance Act, 1994. Such machinery provision is of significance to the tax scheme only upon determination of tax liability. The tax liability in the present instance could not have been determined unless with, and except by, reference to the contract of employment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1994, in addition to penalty of like amount under section 78 of Finance Act, 1994, M/s Garware Polyester Ltd is before us with the submission that the rejection of their declaration under Voluntary Compliance Encouragement Scheme (VCES), 2013, in terms of section 107 of Finance Act, 2013, was erroneous and that the order [ order-in-original no. 73/ST/COMMR/2016 dated 3rd March 2016 ] of Commissioner of Central Excise and Customs, Aurangabad had, instead of accepting their declaration of tax due of ₹ 8,58,164 for the period from 2008-09 to 2011-12 charged them with tax of ₹ 35,12,757 on activities that were excludible from tax according to section 66B(44) of Finance Act, 1994. 2. We have heard Learned Counsel for the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay Service tax. Further, as per Notification No. 30/2012-S.T. dated 20.06.2012, amended by Notification No. 45/2012-S.T. dated 07.08.2012 (at Sr. No. 5A of the table), 100% liability of the service tax in respect of Director's remuneration falls upon the service recipient As such, it is very clear that service provided or agreed to be provided by a director of a company is taxable and the Service Tax Rules or the aforesaid notification nowhere mentions that Managing Director/whole-time Directors are excluded for payment of Service tax. The noticee is taking shelter that service provided by an employee to the employer in the course of or in relation to his employment is not a "service" in terms of Section 65B (44) of the Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same on behalf of the Board of Directors. So, it is clear that Managing Director is acting as representative of Board of Directors and running the business for which he is getting remuneration. It appears that by merely exercising the authority of Board of Directors, the Managing Director does not become employee of the company and remain as one of Directors of Board of Directors and by virtue of delegation of authority by the Board of Directors to the Managing Director, he becomes most powerful Director. Hence, it appears that remuneration paid to the Managing Director and/or whole-time Directors is taxable as there does not exist relation of employee and employer. The relation of Managing Director and/or whole-time Directors to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. However, the service provided by the Directors cannot be considered employee's service unless there is any evidence on record showing employee and employer relation i.e. Article of Association indicating employee & employer relation of the Managing Director / Executive Director with the company, letter of appointment, terms and conditions of employment etc. 39. I find that as per provisions of Company Act, 1956, the Directors are elected through shareholders of the Company; the decision making powers and management of the company affairs are looked after by the Board through Directors; the Directors of a company are performing management functions on behalf of the company through Managing Director; the directors are having share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in addition to contractual compensation. The additional tax liability has been fastened after the 'negative list regime' was made operational and influenced, unduly so, by the definition of 'person liable for paying the service tax' in Service Tax Rules, 1994 which is nothing but a machinery provision stemming from statutory delegation under section 68 of Finance Act, 1994. Such machinery provision is of significance to the tax scheme only upon determination of tax liability. The tax liability in the present instance could not have been determined unless with, and except by, reference to the contract of employment. In the absence of such enquiry, and further finding thereof in the impugned order, the determination that the claim under the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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