The Madras High Court has quashed the Goods and Services Tax ( GST ) Demand on incentives paid to directors in ignorance of employer-employee relation as per Central Board of Indirect Taxes and Customs ( CBIC ) circular.
M/s. Global Calcium Private Limited, a leading player in the supply of Bulk Drugs and Pharmaceutical Intermediaries, had filed three writ petitions challenging GST assessment orders for the financial years 2017-2018, 2018-2019, and 2019-2020.
The petitions were heard in the High Court of Judicature at Madras by Justice Senthilkumar Ramamoorthy.
The petitioner was represented by V. Sreenivasa Reddy, who contended that discrepancies identified during an audit led to the issuance of notices by the Assistant Commissioner (ST), Hosur (North)-1.
The impugned orders were subsequently challenged under Article 226 of the Constitution of India. The common prayer sought a Writ of Certiorari to quash these orders.
The principal contention involves the GST liability of performance-linked incentives paid to two whole-time directors of the company. Third, discrepancies related to E-way bills are also contested.
Regarding the first issue, the petitioner argued that ITC was not claimed due to ineligibility under Section 17(5) of the Tamil Nadu Goods and Services Tax Act, 2017.
On the matter of performance-linked incentives to directors, the petitioner asserted that these payments were made in their capacity as employees, citing Circular No.140/10/2020-GST dated 10.06.2020.
Despite providing relevant documents and pointing out TDS deductions under Section 192 of the Income Tax Act, the Goods and Services Tax Assessing Officer allegedly disregarded this information.
After considering the submissions, Justice Senthilkumar Ramamoorthy quashed the impugned orders, emphasising that relevant aspects including the employer employee relation of company with director, including Circular No.140/10/2020-GST, were not adequately considered.
It was observed that, “Ultimately, the test is whether such remuneration was paid towards services provided as an employee of the company or whether services were provided under a contract for service for fees or other consideration.”
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