A. Provisions under GST law
Services provided by director is supply under GST act and recipient of service i.e company located in India needs to pay GST@18% on RCM basis. Relevant extract from RCM ntfn-13/2017 dt 28.06.17 is produced as below:
|S.no.||Category of Supply of Services||Supplier of service||Recipient of Service|
|6||Services supplied by a director of a company or a body corporate to the said company or the body corporate.||A director of a company or a body corporate||The company or a body corporate located in the taxable territory|
B. Tax Position generally taken companies
Independent directors: GST is paid on RCM basis on commission & sitting fees paid to both resident and non-resident independent directors.
Wholetime/Executive/Managing Directors: These directors act as employee of the company and are paid remuneration in form of salary, performance bonus, PF/Superannuation/gratuity & perquisites. The entire remuneration paid is in the employee capacity and accordingly TDS is also deducted under the head of Income from Salary along with further PF & other employee related compliances.
As per Schedule III of the CGST Act, services provided by an employee to the employers are outside the scope of GST and are not taxable. Hence, RCM is not applicable on remuneration paid to Wholetime/Executive/Managing Directors.
In case any commission/sitting fees is paid in the capacity of director, GST is applicable on RCM basis
C. Advance Rulings (AAR) under GST
1. Clay Craft India Private Limited (Rajasthan AAR)
The Company had various Directors who were working for the Applicant in two capacities:
a) Whole time Directors: As per Memorandum and Articles of Association of the Applicant, Directors were appointed as full-time employees and were given employee benefits salary, allowances etc. subject to deduction of TDS and PF as per employment contract. All conditions applicable to other employees of the Applicant, were applicable on Directors as well. No GST was paid by applicant on this
b) Services provider: For services performed in the capacity of director commission was paid and applicant was paying GST on RCM basis.
AAR observed that Directors were not employees of the Applicant and hence their services are not covered under Entry 1 to Schedule III of the CGST Act. Accordingly, consideration in form salary or commission to director shall be understood to be paid for the supply of director services & would be subject to RCM.
The decision of AAR appears to be incorrect, as it fails to consider the fact that Directors were working in the capacity of employees as well. The company was deducting TDS on their salary and PF laws were also applicable to their service.
It is a settled principle that a person can act in two different capacities and taxability of each capacity needs to be seen distinctly. In this case, Directors were concurrently acting as employees as well as service providers. Salary paid by the Applicant for employer-employee relationship with Directors was clearly outside the purview of GST law vide Entry 1 to Schedule III appended to the CGST Act.
2. Alcon Engineering Consultants (Karnataka AAR)
Ruling was pronounced on similar lines of clay craft discussed above.
D. Position under Service Tax
Under Service Tax law as well, services received by a Company from its Directors were subject to Service Tax under RCM.
An identical dispute was raised by the authorities seeking to bring salaries paid to Directors under the ambit of Service Tax. Tribunal consistently held that Service Tax is not leviable on services provided by Directors who are employees of the Company. The Tribunal gave due importance to Income Tax treatment adopted by the Company (deduction of TDS under salary head), compliances under labour laws (like deposition of PF) etc. while rendering its decisions.
Case law under service tax (for reference)
1. Allied Blender and Distillers Pvt. Ltd. Vs. Commissioner of Central Excise and Service Tax, Aurangabad (CESTAT Mumbai):
2. Nrb Industrial Bearings Pvt. Ltd Versus CCE & ST8
3. Hon’ble CESTAT in case of M/s. Maithan Alloys Limited [ Appeal No. 75277 of 2016]
4. PCM Cement Concrete Pvt. Ltd. Vs. CCE, Siliguri [2018 (9) GSTL 391 (Tri-Kol)]
5. Maithan Alloys Ltd. Vs. CCE & ST, Bolpur [Appeal No. 75277 of 2016].
In view of above discussion, it can be concluded that