Fact: M/s. Allied Blenders and Distillers (P.) Ltd. (“the appellant”) are registered with the Central Excise Department for providing taxable services under the category of ‘rent a cab service’, ‘security agency service’, ‘manpower recruitment and supply agency service’, ‘transport of goods by road/goods transport agency service’, ‘business support service’, and ‘works contract service’. During the course of audit, on scrutiny of their records, it was noticed that the appellant had been receiving services from the directors but failed to discharge service tax under reverse charge mechanism, on the remuneration paid, in accordance with Notification No.30/2012-ST dated June 20, 2012 and Notification No.45/2012 dated August 07, 2012. Consequently, demand notice was issued to the appellant for recovery of service tax of Rs.12,48,67,525/-against the total amount of remuneration of Rs. 101,02,55,057/-paid to the directors during the period from July 2012 to March 2015.
Issue Involved: Whether remuneration paid to the Directors by the appellant is chargeable to service tax and the assessee is required to discharge service tax under reverse charge mechanism in accordance with Notification No. 45/2012-ST, dated August 07, 2012 and Notification No. 46/2012-ST, dated August 07, 2012.
Appellant’sInterpretation of law: The appellant opposing the contention of the revenue argued that the remuneration paid by it to the Directors was in the nature of salary paid to them, since said Directors were whole time Directors and employees of the company. It further argued that since the relation between the appellant and the four Directors was in the nature of employer and employee, no service tax was payable by it on the remuneration paid to the Directors which was nothing but ‘salary’ being paid to an employee.
The appellant had placed on record Form-16 issued by it indicating deduction of income tax at source on the salary paid to each of the Directors. Besides the appellant had also produced the contribution made to the Employees Provident Fund for each of the Directors, as required in case of other employees under the relevant laws. The statement furnished for all the employees by the appellant reflects the names of the Directors also. Similarly, in Form-32, as required to be filed under the Companies Act with the Registrar of Companies, the four Directors are shown as executive Directors indicating that they are employees of the company.
Held: The Hon’ble CESTAT of Mumbai Bench vide its Order No. A/88105 of 2018 dated June 25, 2018 stated that it is crystal clear that the Directors, who are concerned with the management of the company, were declared to all statutory authorities as employees of the company and complied with the provisions of the respective Acts, Rules and Regulations indicating the Director as an employee of the company. No contrary evidence has been brought on record by the revenue to show that the Directors, who were employees of the assessee, received amount which cannot be said as ‘salary’ but fees paid for being Director of the company. The Income Tax authorities also assessed the remuneration paid to the said Directors as salary. Therefore, the impugned order of the Adjudicating Authority deserved to be set aside and the appeal is allowed.
Citation: [2019] 101 taxmann.com 462 (Mumbai – CESTAT)