Agni Steels Pvt. Ltd. Vs Commissioner of GST and Central Excise (CESTAT Chennai)
Conclusion: Demand of service tax on remuneration paid to the Chairman and Directors was unsustainable as remuneration paid to the Directors constituted “salary” under an employer–employee relationship and was therefore not eligible to service tax.
Held: Appellant had challenged an Order-in-Original confirming demand of service tax, interest and penalty under the reverse charge mechanism (RCM) on remuneration paid to its chairman and two Directors for the period 07.08.2012 to 31.03.2014. Department alleged that the payments constituted consideration for taxable services provided by directors to the company, attracting service tax under Section 68(2) read with Rule 2(1)(d)(i)(EE) of the Service Tax Rules and Notification No. 30/2012-ST. Appellant contended that the directors were whole-time employees and the payments were salary, excluded from the definition of “service” under Section 65B(44)(b). Appellant further argued that the three directors were whole-time executives involved in day-to-day management, appointed through shareholder resolutions, and paid fixed remuneration treated as salary. Documentary evidence such as appointment letters, AGM resolutions, ledger entries, audited financials, TDS deduction under Section 192, Form-16 and statutory audit reports were relied upon to establish an employer–employee relationship. It was contended that remuneration paid in the course of employment was excluded from service tax and therefore RCM was not applicable. Reliance was placed on CBEC Circular No. 115/9/2009-ST and several Tribunal decisions including Maithan Alloys Ltd., Allied Blenders & Distillers Pvt. Ltd., Rent Works India Pvt. Ltd. and Bhavna Jayantibhai Desai. Revenue, supporting the impugned order, contended that the payments were remuneration to directors in their capacity as directors and constituted consideration for services rendered. It was argued that appellant failed to establish an employer–employee relationship and that mere accounting or TDS treatment was not determinative. Hence, the company was liable to pay service tax under RCM in terms of Notification No. 30/2012-ST. Tribunal held that the test to determine taxability depends on whether the relationship between the company and the directors that of employer was–employee or principal-to-principal. On examination of the documentary evidence, including appointment letters, shareholder resolutions, treatment of payments as salary in books of account, deduction of TDS under Section 192 and issuance of Form-16, the Tribunal found that the directors functioned as whole-time employees of the appellant. It was held that remuneration paid to whole-time directors in the course of employment squarely fell within the exclusion under Section 65B(44)(b) of the Finance Act, 1994 and did not constitute a taxable service. The Tribunal noted that the issue was no longer res integra and was covered by consistent judicial precedents and CBEC clarification. Since there was no taxable service, the provisions of reverse charge under Notification No. 30/2012-ST were held to be inapplicable.
