The Company, Clay Craft India Pvt Ltd. sought for clarification before Rajasthan- AAR No. RAJ/AAR/2019-20/33 as to whether the salary paid by them to directors would be liable to GST.
The brief facts on the remuneration and roles and responsibilities of the directors of the Company was as below:
-Directors of the company were working as employee of the company and were compensated by way of regular salary and other allowances as per company policy and employment contract.
-Directors were performing all the duties and responsibilities and were holding charge of procurement of raw material, production, quality checks, accounting etc.
-The company was deducting TDS on their salary and PF laws are also applicable to their service.
The Company sought for advance ruling on below questions:
1. Whether GST is payable under RCM on salary paid to director of the Company which is paid as per contract.
2. Whether the situation would change from (a) above, if the director is also a part time director in other company also
In its ruling, the AAR said, “the consideration paid to the directors by the applicant company will attract GST under reverse charge mechanism…”
The AAR stated that Director is the supplier of services and the applicant of the company is the recipient of the services and they are not employee of the company. As the service provided by director is provider of service and the Company being recipient of service, the same is liable to GST by way of RCM as per Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017.
Further, the situation will remain same as (a) above and will attract GST under RCM.
Conclusion: Schedule III – relates to activities that are not treated either as supply of services or Goods. Further, entry no 1 states that Services by an employee to the employer in the course of or in relation to his employment.
In my view, on joint reading of Notification No. 13/2017 – CT and Schedule III, any amount paid to Director which is in the nature of employment contract is not liable for payment of GST. Whereas any amount paid to Directors in the nature of professional relationship will be liable for GST under RCM.
Thus, this ruling needs to be clarified for interest of the business community at large.
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Does it mean no company below threshold limit can remain GST unregistered since all companies having Directors would be required to pay on RCM basis which necessitates registration? Does it also mean all Directors of Govt UTs would have to pay GST?
The ruling is solely based on notification without first deciding whether service by a Director_employee is covered by the notification overruling Ann.III to the GST Act.
This is a good example of what happens when such a powerful authority is formed comprising only working Departmental authorities and no judicial member.