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Judgment
The issue involved in the present case is that whether;
(i) Service tax is chargeable on the remuneration paid by a company to the Managing Director and the whole time Executive Director.
(ii) Whether the Managing Director and whole time Executive Director of the appellant company are its “employees†and the remuneration paid
to them is in the nature of “Salary†and hence whether falling outside the definition of “Service†under section 65B(44) of the Finance
Act,1994.
Shri Paresh M Dave, Learned Counsel appearing on behalf of the appellant submits and argued the case in detail and he has also submitted
consolidated note of written submission dated 15.02.2021. As per his submission both the directors are the employees of the company and they were
paid salary. In this regard he heavily placed reliance on income tax return filed by both the directors in Form-16 wherein the remuneration paid by
company to the said directors were shown as salary income and TDS is also deducted under the same head. He submits that the impugned
adjudication order is not sustainable by virtue of several decision rendered by Kolkata as well as Bombay benches of the Hon’ble Tribunal. The
case law relied upon by the commissioner has also been considered in such judgments rendered by this tribunal and such case law has also held to be
inapplicable and distinguishable. He submits that from the said judgments the position emerges in the appellant favour clearly indicates that directors
are employees of the company and remuneration (inclusive of bonus and allowances) paid to the directors is salary and hence not chargeable to
service tax. He placed reliance on the following judgment:
• Maithan Alloys Ltd V/s. CCE & ST, Balpur â€" 2020 (23) GSTL 228 (Tri.- Kolkata)
• Allied Blenders and Distillers Pvt Ltd V/s. CCE & ST, Aurangabad- 2019 (24) GSTL 207 (Tri.- Mumbai)
• Vectus Industries Ltd. V/s. CST, Noida 2020- TIOL-65- CESTAT- ALL
• Rent Works India Pvt Ltd V/s. CCE, Mumbai â€" V 2016 (43) STR 634 (Tri.- Mumbai)
• NRB Industrial Bearing Pvt Ltd. V/s. CCE & ST, Aurangabad. 2019- TIOL -2594- CESTAT- MUM
• Bosch Chassis Systems India Ltd V/s. CCE, Pune-I 2013 (32) STR 301 (Tri.- Mumbai)
• Employees’ State Insurance Corporation V/s. Apex Engineering Pvt Ltd. MANU/SC/ 0146/2019
2.1 He further submits that the demand is time barred as the extended period of the demand could not have been invoked. All the details about the
remuneration paid to the directors in question were noticed by the Central Excise Revenue Auditors (CERA) through the appellant’s audited
books of accounts and balance sheet and thus all the relevant details about the remuneration paid to the directors were disclosed in the audited
accounts and balance sheet before Income Tax Authorities as well as the Registrar of Companies, there was no suppression of fact by the appellant.
He further submits that the appellants are paying substantial amount of excise duties in cash throughout the business operations including the period in
question and therefore if service tax was paid on directors’ salary then the same could not have been admissible as Cenvat credit for being used in
discharging liability of Excise Duty. There cannot be any clearly evade payment of service tax in such revenue neutral situation. The Learned counsel
in his written submission dated 15.02.2021 also filed appellant reply rejoined to the submission made by the Authorized Representative which is taken
on record.
On the other hand Shri T.G Rathod, Learned Additional Commissioner (Authorized Representative) appearing on behalf of the revenue reiterates
the finding of the impugned order. He also filed a detailed written submission dated 27.01.2021 and also placed reliance on the following judgments:
• Sudip Rungta V/s DCIT [ITAT Appeal No.2370/Kol/2017]
• CIT Vs B.Ghosal (125 ITR 444)
3.1 Learned Authorized representative, post hearing submitted a letter dated 08.02.2021 wherein the status of Hon’ble Supreme Court cases on
the same issue which are pending is also given.
We have carefully considered the submissions made by both the sides and perused the records. We find that the Learned Commissioner despite the
submission of the appellants that the remuneration paid by the appellants to the managing director and the executive director of the company was
shown as “Salary†and declared in Form- 16 which is a income tax return for the salary income decided that the remuneration paid is not a salary
but directors remuneration. Therefore, the same is liable to service tax in the hands of the appellant. We find that though in the Income tax return the
remuneration was declared as salary income but it is a self declaration. However, whether such income is a salary income or otherwise the same can
be established on the basis of employment conditions for employment of directors as company’s employees. In the entire proceedings the
appellant have not produced the appointment order of the directors as employees containing the terms and conditions of the employment. On the basis
of terms and conditions of the employment of directors as employees it can be ascertained whether the directors are employees or otherwise which is
the root of the entire issue. Therefore, we are of the view that matter needs to be reconsidered taking into account not only the position of income tax
but also on the basis of terms and conditions of the employment. We also find that the learned Authorized Representative has submitted the status of
identical issue in case of M/S PCM CEMENT CONCRETE PVT LTD pending in the Hon’ble Supreme Court. The latest order by the
Hon’ble Supreme Court is scanned below:
4.1 From the above status we find that the matter is coming up for final disposal. The Adjudicating Authority may take cognizance of Hon’ble
Supreme Court judgment in the above case while passing a de-novo order depending on the facts of the case. All the other issues are kept open.
The appeals are allowed by way of remand to the adjudicating authority for passing a fresh de-novo order by following the principles of natural
justice.
(Pronounced in open court 24.05.2021)