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SERVICE TAX ON DIRECTOR’S REMUNERATION-INSTIGATING LITIGATION!

Service Tax - By: - Pradeep Jain - Dated:- 25-9-2015 - Introduction:- The issue regarding leviability of service tax on remuneration paid to the directors has been matter of concern since 07.08.2012 when reverse charge mechanism was introduced vide notification no. 45/2012-ST dated 07.08.2012 for the service tax liability as regards services provided by a director to a company. The question as regards what kind of amount paid to the directors is leviable to service tax has haunted the minds of v .....

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of body corporate under section 2(11) of the Companies Act, 2013 has a very wide scope. In this article, an attempt is made to untangle the conceptions taken as regards service tax liability with respect to services provided by directors. Quick look at relevant statutory provisions:- Entry no. 5A of the Notification no. 30/2012-ST dated 20.06.2012 reads as follows:- Sl. No. Description of service % of service tax payable by service provider % of service tax payable by service receiver 5A In res .....

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gift or in any other manner; or Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause 29(A) of article 366 of the Constitution; or A transaction in money or actionable claim; A provision of service by an employee to the employer in the course of or in relation to his employment; Fees taken in any court or tribunal established under any law for the time being in force. Analysis of the statutory provisions:- It is pertinent to note that the whole .....

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y such directors in the capacity of employee of the company. Furthermore, the fact that remuneration received by the whole time directors, managing directors etc. is shown in their Income Tax Returns under the head Income from Salary also fortifies the fact that the amount received is in lieu of their employment with the company. As such, when CBDT, being one of the wing of the government department is accepting the amount paid to the managing directors, whole time directors etc. as salary in li .....

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ion to employment, the said activity is outside the purview of the defination of service and consequently no service tax is leviable on the same. Furthermore, when an activity is not within the ambit of service , the question of reverse charge mechanism does not arise. However, following points are also worth observing in this context:- The serial no. 5A of the notification no. 30/2012-ST does not makes distinction between different types of directors. Therefore, service tax demands are being ra .....

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f service. Now, who all are treated as employees remains debatable. General Circular No. 24/2012 dated 09.08.2012 issued by Ministry of Corporate Affairs confirms the fact that service tax is payable on the commission/sitting fees payable to the Non-Whole Time Directors of the company and the increase in the quantum of remuneration paid to them on account of service tax will not be considered for the purpose of approval of Central Government under section 309 and 310 of the Companies Act even if .....

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