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TMI Blog2025 (5) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... ice tax payable, under Section 73(2) of the Finance Act 1994 (Act) along with applicable interest and imposing a penalty under Section 76 of the Act. 2) Brief facts are that the appellant is a manufacturer of readymade garments, who is also registered with the department for payment of service tax on "Transportation of Goods by Road service" under reverse charge mechanism. During audit it was noticed by the Department that the appellant had paid remunerations, turnover incentives, sitting fees and travelling expenses to the Managing Director and two other directors for the services rendered by them to the appellant during the period 07-08-2012 to 31.03.2014. The department was of the view that the services received from the directors neith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ". When the Act has specifically excluded the service rendered by an employee to the employer it is incorrect to invoke Rule 2(1)(d) of the Service Tax Rules to justify a non existing levy under reverse charge as the Act always prevails over the rules. That the directors of a company are the first employees with well defined scope of work to be carried out in terms of the Companies Act under section 2(24), 2(54), 166, 179 etc and the charter of the companies and when such duties are legally imposed there is no requirement to look for any other appointment order. That in any event, the appellant has paid its directors the remuneration which is lawfully salary as is evidenced by all their Form 16 (salary certificates for the salary covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is an employer employee relation on the grounds that no appointment order has been produced. It is also seen that the adjudicating authority has noted the definition of salary as defined under Section 17(1) of the Income Tax Act, 1961 yet has chosen to hold that the directors are not employees as in his view, the term salary does not include remuneration, sitting fee etc., paid to the directors and thereby the exclusive clause of Section 65B(44) is inapplicable. Strangely, he has chosen to do so, without controverting the evidence adduced by the appellant along with its reply, by way of resolutions passed by the Board of Directors in accordance with the Companies Act which stated inter-alia that the directors concerned in the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand of service tax on remuneration paid to whole-time directors cannot be sustained and hence set aside. Since demand of service tax is set aside, penalty and interest are also not sustainable." Similar view is seen taken in the decision of this Tribunal in Amar Raja Batteries v Commr of Central Tax, Tirupathi-GST, (2024) 21 Centax 216 (Tri-Hyd), and Allied Blenders & Distillers Pvt Ltd v CCE & ST, Aurangabad, 2019 (24) GSTL, 207 (Tri- Mumbai). 9) We also note that the appellant has enclosed the very same evidence of Board Resolutions as well as Form 16 of the concerned Directors, along with the appeal records, which in our view, given the earlier decisions of this Tribunal cited supra, evidence the employer employee relationship betw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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