Remuneration Paid to Directors is in Nature of Salary, Excluded from Service Definition: CESTAT [Read Order]
CESTAT ruled that remuneration paid to directors as salary is excluded from the definition of service and not liable to service tax
CESTAT
CESTAT
The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that remuneration paid to directors in the nature of salary is excluded from the definition of service and not liable to service tax.
Neelamber Catterers Pvt. Ltd., the appellant, had paid remuneration to its directors and deducted tax at source under section 192 of the Income Tax Act. The department demanded service tax of Rs. 1,49,411/- on such payments under the reverse charge mechanism, alleging that the directors were not full-time employees as they had income from other sources.
The appellant argued that the directors were employees of the company, and the remuneration paid was salary supported by Form 16 issued under the Income Tax Act. They further argued that services by an employee to the employer in the course of employment are outside the scope of service as defined under section 65B(44)(b) of the Finance Act, 1994.
The revenue counsel argued that the directors were not employees in the strict sense and that the remuneration was subject to service tax under the reverse charge mechanism.
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The single-member bench comprising K. Anpazhakan (Technical Member) agreed with the appellant’s arguments. The tribunal observed that the remuneration was paid as salary, tax was deducted under the salary head, and the directors were employees of the company.
The tribunal pointed out that as per section 65B(44)(b) of the Finance Act, 1994, services provided by an employee to the employer during the course of employment are not taxable. The tribunal explained that CBEC Circular No. 115/9/2009-ST had also clarified that remuneration paid to directors in their capacity as employees is outside the scope of service tax. The demand was set aside.
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