The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) held that the remunerations paid to directors are not “commission’ under the service tax category.
During the course of business, the Appellant’s company pays remuneration to its Managing director and whole-time directors which has a fixed and variable components. The said directors are paid salary and such incentives as linked to their performance and financial results of the Appellant’s company in accordance with the Company’s Act.
The Department, under the present circumstances had raised demand of service tax under reverse charge mechanism in terms of Sl. No. 5A of Notification 30/2012 – ST dated 20.06.2012 as amended by Notification No. 45/2012 – ST. The adjudicating authority has confirmed the demand along with interest.
The Advocate appearing on behalf of the Appellant submitted that the department has erred in interpreting the provision of Company’s Act,1956 by ignoring the fact that the remuneration in dispute has been paid to its directors in the nature of salary and that there is a well – defined nature of employer and employee between the Directors and the Company. Therefore, the Department has wrongly categorized the same under services. It has been submitted that Directors of the company in addition to the fixed component of salary are also eligible for such incentives as maybe prescribed by the Company in terms of its performance.
In Bengal Beverages Pvt. Ltd. v CGST & Excise, Howrah, it was held that “the whole-time Director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that the whole-time Director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time Director.”
A Two-Member Bench comprising Ramesh Nair, Judicial Member and Raju Technical Member observed that “We also consider the submissions made by the Learned Counsel with regards to clarification issued by the Central Board of Excise and Customs vide Circular No. 115/09/2009 – ST dated 31.07.2009 that states that the remunerations paid to such Directors would not be considered “commission’ as envisaged under Service tax category.”
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