The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax on reverse charge basis applicable to salary paid to directors.
The bench of Ramesh Nair Member (Judicial) and C L Mahar (Technical Member) has observed that the remuneration paid by the appellant company to the directors are clearly in the form of salary. Therefore, the relationship between the appellant and their directors are of employer and employee relationship. Hence, it is not taxable in terms of Section 66 (B) (44) of the Finance Act, 1994.
Table of Contents – Service Tax On Reverse Charge Basis
Background
The department’s case is that the directors name is not appearing in the pay register of the company and there was no deduction of the provident fund from the remuneration. Therefore, there is no relationship of the employer and employee between the appellant and their directors. Therefore, the amount paid to the directors is liable to service tax.
The department submitted that merely because the name of the directors are not appearing in the pay register and provident fund was not deducted, at the most, the same can be violated under the different Act.
However, the payments made to the directors were recorded as salary in the books of account. The TDS was also deducted under ‘salary’ head in terms of Section 192 of the Income Tax Act.
Therefore, this statutory record proves that the payments made to the directors are in the form of salary. Hence, the relationship between the appellant and their directors are of employer and employee relationship. Accordingly, it is not taxable as per Section 66 (B) (44) of the Finance Act, 1994.
Issue Raised
The issue raised was whether the remuneration paid to the directors is salary or otherwise and if yes whether the same is liable to service tax under reverse charge basis.
Conclusion – Service Tax On Reverse Charge Basis
The tribunal held that there are board resolutions resolving that these directors are appointed as employees of the appellant company and payment of remuneration was made in the form of salary which is evident from the TDS records, the TDS was deducted under Section 192 of the Income Tax Act.
The tribunal while relying on the income tax record such as TDS deduction under the account head of salary in number of judgments as cited by the appellant held that the amount paid by the company to the directors are in the form of salary and the same is not taxable as per negative list of service under Section 65 B (44) Finance Act, 1994.
The tribunal while allowing the appeal held that the service tax demand was not sustainable.
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Case Details
Case Title: Falcon Pumps Pvt Ltd Versus Commissioner of C.E. & S.T.-Rajkot
Case No.: Service Tax Appeal No. 11730 of 2018 – DB
Date: 14.11.2024
Counsel For Appellant: P. D. Rachchh
Counsel For Respondent: Anoop Kumar Mudvel
