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TMI Blog2024 (11) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... ry is not liable for service tax as per negative list under Section 65 B (44) (b) of the Finance Act,1994. He further submits that demand is for the period of 01.08.2012 to September 2014 and the show cause notice was issued invoking extended period on 29.10.2015. He submits that there is no suppression of fact as the appellant have been informing the department regarding payment of Director's remuneration. Therefore, the demand for the extended period is not sustainable also on the ground of limitation. He placed reliance on the following judgments and board circulars:- * Rent Works India Pvt Ltd V/s. Commissioner of C. Ex.. Mumbai V 2016(43) S.T.R 634 Tri-Mumbai * Allied Blenders and Distillers Pvt Ltd. V/s. C.C.E & ST., Aurangabad2019(24) G.S.T.L 2017 (Tri-Mumbai) * Maithan Alloys Ltd. V/s. Commissioner of C Ex & S.T., Bolpur 2020(33) G.S.TL (Tri-Kolkata) * Circular No. 140/102020-GST Dated 10.06.2020 * Circular No 115/9/2009-GST Dated 31.07.2009 * PCM Cement Concert Pvt Ltd. V/s. C.C.E Siliguri 2018(9) G.S.T.L 391 (Tri-Kolkata) * PCM Cement Concert Pvt Ltd. V/s. C.CE 2018(9) G.STL 391 (Tri-Kolkata) * M/s. Sanjeev Auto Parts Manufacture Pvt Ltd V/s. CC E Aurangan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this point the contention of the revenue is absurd and without any legal backing. Moreover, this issue has been considered in a catena of judgments by this Tribunal, some of the judgments are cited below:- a) In the case of Allied Blenders and Distillers Pvt Ltd (supra), Mumbai bench of this Tribunal decide the identical issue as under:- "5. The short issue involved in the present appeal for determination is whether remuneration paid to the Directors by the appellant is chargeable to Service Tax and the appellants are required to discharge Service Tax under reverse charge mechanism in accordance with Notifications No. 45/2012-S.T., dated 7-8-2012 and 46/2012-S.T., dated 7-8-2012. Revenue's allegation is that the Directors namely, Shri K.R. Chhabria, Shri U.K. Ganguli, Shri Deepak Roy and Shri Jitendra Hemdev, who were paid remuneration during the period July, 2012 to March, 2015 amounting to Rs. 1,01,02,55,057/- by the appellant, Service Tax of Rs. 12,48,67,525/- was required to be discharged by the appellant. Opposing the said contention of the Revenue, the appellant has argued that the amount paid to the said Directors are in the nature of the salary paid to them, since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director appointed to the Board of a company. 2(54) "Managing Director" means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of the managing director, by whatever name called. 2(94) "whole-time Director" includes a Director in the whole time employment of the company;" "Executive Director" means a whole time director as defined in clause (94) of Section 2 of the Act. In the present case, the Board of Directors (BOD) are empowered to appoint under clause 93 of the Articles of Association, Managing Director and Whole-time Director with such conditions as may deem fit. It reads as follows : - 93. Managing Director/Whole-time Director/Manager. - Subject to provisions of the Act, the Rules framed thereunder and the approval of the Promoter(s), the Board may from time to time, appoint Managing Director/Whole-time Director/Manager for one or more of the divisions of the business carried on by the Company and to enter into agreement with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt was whether the 10% gross profit payable to the assessee under the terms of the agreement appointing him as the managing director is liable to be assessed as 'salary' or under the head 'income from business'. The contention of the assessee in that case was that in order to assess the income as salary it must be held that there was a relation of master and servant between the company and the assessee. It was pleaded that for such a relationship to exist, it must be shown that the employee must be subject to the supervision and control of the employer in respect of the work the employee has to do. Where, however, there is no such supervision or control it will be a relationship of principal and agent or an independent contractor. Their Lordships analyzing the characteristics of master-servant relationship observed as : "6. There is no doubt that for ascertaining whether a person is a servant or an agent, a rough and ready test is, whether, under the terms of his employment, the employer exercises a supervisory control in respect of the work entrusted to him. A servant acts under the direct control and supervision of his master. An agent, on the other hand, in the exercise of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nager of the company can be done on terms and conditions and on such remuneration as can be agreed upon between him and the Directors of the Company and under the latter he had to execute the decisions that may be arrived at by the Board from time to time. The very fact that apart from his being a Managing Director he is given the liberty to work for the company as an agent is indicative of his employment as a Managing Director not 'being that of an agent. Several of the clauses of Article 140 as pointed out by the High Court specifically empower the Board of Directors to exercise control over the Managing Director, such, for instance to accept the title of the property to be sold by the company, providing for the welfare of the employees, the power to appoint attorneys as the Directors think fit, etc. As pointed out earlier under the terms of the agreement he can be removed within the period of 20 years for not discharging the work diligently or if he is found not to be acting in the interest of the company as Managing Director. These terms are inconsistent with the plea that he is an agent of the company and not a servant. The control which the company exercises over the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax at source cannot be considered that the Director and the Company has employer and employee relationship. It is the agreement between the employer i.e. company and the Director would reveal the exact relationship between them. In the present case, no such agreement exists between the employer and the Directors, hence there exists no employer-employee relationship. 15. We do not find merit in the argument of the Revenue inasmuch as during the course of investigation, the statement of Shri Atit Dalai, Vice President (Finance & Accounts) of the appellant company was recorded by the investigating officers on 4-6-2015. Answering the question No. 3. Mr. Dalal informed that there were four directors in the company and they were appointed in accordance with the provisions of Companies Act and Regulation of Article of Association of Company for managing day-to-day affairs of the company. Further answering to question No. 4, he has stated that the company are paying them remuneration which is nothing but salary. All the necessaiy deductions on account of Provident Fund, Professional Tax and TDS under Section 192 of the Income Tax Act are made as applicable; also they were issuing Form- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor is considered and recognized as a 'key managerial personnel' under Section 2(51) of the Companies Act. Further, he is an officer in default [as defined in clause (60) of Section 2] for any violation or non-compliance of the provisions of Companies Act. Thus, in our view, 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. We are thoroughly convinced that when the very provisions of the Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences, it leads to the conclusion that those directors are employees of the assessee company. 7. Further, in the present case, the appellant has duly deducted tax under Section 192 of the Income-tax Act which is the applicable provisions for TDS on payments to employees. This factual and leg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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