Recently, Rajasthan Authority for Advance Ruling in case of M/s. Clay Craft India P. Ltd. has held that GST is leviable under reverse charge mechanism on Salary paid to Directors. In its decision pronounced on 20.02.2020 it has held that notification no. 13/2017 dated 28.06.2017 has given distinct identity to the service provided by the Director and specifically included in the category of services in which the GST will be payable under RCM.
In this write-up let us examine “Whether GST is payable under reverse charge mechanism on remuneration payable to director.
Based on the aforesaid, what can be derived is:
CESTAT, Kolkata in case of Maithan Alloys V. CCE & ST, Bolpur pronounced on 22.04.2019, in issue before it “whether remuneration paid to whole time directors would constitute ‘service’ liable to service tax in the hands of the assessee under reverse charge mechanism, has held that the whole time director is essentially an employee of the Company, demand of service tax on remuneration paid to whole time directors cannot be sustained and hence set aside
Also, CESTAT, Mumbai in case of M/s. Allied Blenders and Distillers (P.) Ltd. has held that 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. Thus, setting aside the order of the adjudication authority, charging service tax on remuneration paid to Director
In the case before Rajasthan Authority for advance ruling, AAR has made no effort to distinguish between executive directors and non -executive directors. Further, Company M/s Clay Craft India P. Ltd. in addition to remuneration was also paying commission and was also discharging GST under RCM on such commission paid to directors. AAR, while arriving at decision, relied on the fact that Company, itself, was paying GST on commission paid to director under RCM, and held that GST was chargeable on remuneration paid to directors.
One would differ on above, even if the company is paying commission (variable) in addition to the fixed salary to whole-time director, which is within the scope of employment the same will be considered as remuneration and if paid to whole time director the same will not be chargeable to GST.
Judgement of AAR has only created the confusion which will lead to litigation, as the department will want to levy GST on remuneration paid to directors irrespective of paid to executive director or non-executive director. Necessary clarification will go long way to ease the burden of litigation on taxpayers and will lead to ease of compliance.
(The views expressed herein are personal views of the Author. The views expressed herein in not intended and shall not be taken as, legal advice. For any further queries, the author can be reached at following Email id: Chhedand@gmail.com)