The Rajasthan Appellate authority of Advance Ruling (AAAR) ruled that the Director’s remuneration declared as Salaries and subjected to TDS are not taxable.
The appellant, M/s. Clay Craft (India) Pvt. Ltd. is engaged in the manufacture of bone China Crockery, Transfer Sheet Decalcomania, other Utensils Item and Moulds and Die falling under chapter heading No. 69111011, 49081000, 84801000 & 84801000 of the Tariff.
Presently, the Board of Directors of the appellant company consists of 6 directors. It has been submitted that all the Directors are performing all the duties and responsibilities and duties as required under the laws.
However along with that these all directors are also working in the company at different level of management in the company and each one of them is holding charge of procurement of raw material, production, quality checks, dispatch, accounting In other words, they are also working as an employee of the company for which they are being compensated by the company by way of regular salary and other allowances as per the company policy and as per their employment contract.
In fact, these Directors are treated at par with any other employee of the company as far as their employment is concerned. The company is deducting TDS on their salary and PF laws are also applicable to their service. Therefore, for all practical purposes, these directors are the employees of the company and are working as such besides being Directors of the company.
The applicant sought the advance ruling on the issue of whether GST is payable under Reverse Charge Mechanism (RCM); the salary paid to the Director of the company who is paid a salary as per employment contract, after deduction of TDS as well as PF.
The AAR held that the consideration paid to the Directors by the applicant company will attract GST under reverse charge mechanism as it is covered under entry No. 6 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the CGST Act, 2017
However, the Appellant was dissatisfied with the AAR’s ruling and preferred the appeal before the AAAR.
The coram consists of Pramod Kumar Singh and Dr. Preetan B. Yashwant ruled that if any, paid by the appellant to the independent directors or those directors who are not the employee of the appellant is taxable in hands of the appellant, on a reverse charge basis.
The AAAR further clarified that the part of Director’s remuneration which are declared as Salaries in the books of the appellant and subjected to TDS under Section 192 of the Income Tax Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.
“The part of employee Director’s remuneration which are declared separately other than “salaries” in the appellant’s accounts and subjected to TDS as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable and in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the appellant, is liable to discharge the applicable GST on it on reverse charge basis,” the AAAR said.Subscribe Taxscan AdFree to view the Judgment
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