Recently in an application filed by the Company M/s Clay Crafts India Pvt Ltd before the Rajasthan bench of Authority for Advance ruling , AAR held that salary/remuneration paid to the Directors working as employee of the company will attract GST and the company is liable to pay GST on reverse charge mechanism as per Entry No 6 of Notification No. 13/2017 dated 28.06.2017 issued under Section 9(3) of the CGST Act, 2017. AAR has made the above judgement considering the following grounds:
1. That consideration paid to the Director for the supply of services to the Company is specifically covered under Notification No 13/2017 vide Entry No 6. This notification deals with the tax payable on reverse charge mechanism by the recipient of services for the supply of services which is categorized under this Notification and consequently services provided by the Director to the Company fall under Entry 6 of the said Notification.
2. AAR also observed that the consideration paid to the Director for the supply of services is outside the ambit of Clause 1 of the Schedule III to the CGST Act, 2017 as the Directors are not the employee of the Company , Clause 1 of the Sch III provides that services provided by an employee to the employer in the course of employment shall not be considered as supply of service hence not liable for GST. Here Director is only the supplier of service and the company is the recipient of services and it is evident vide Entry No 6 of Notification No 13/2017 that tax is payable on reverse charge for the same.
However the question arises here that AAR has not made any differentiation where a Director of the company simultaneously working as a employee/ Director also and the term “employee” has not been defined anywhere in the GST to get a clear view of the same and the Director is paying tax while filing ITR considering as Income from Salary. Further company is already paying GST on reverse charge for any commission paid to Director according to Notification No 13/2017 and in this circumstances a doubt has arisen that where Directors are de-facto employee of the company and salaries are paid to them still the company has to pay GST on reverse charge mechanism as this would amount to genuine hardship and seek clarification for the same.