GST Rulings

Are Variable Payments to Whole Time Directors Liable to GST?

Background

Whole-time directors were paid remuneration in the form of commission (based on percentage of profits). The Revenue demanded service tax on such variable pay.

Decision

A whole-time director is one who is in full-time employment of the company, for which he is entitled to receive remuneration. Hence, it was held[1] by the Hon’ble CESTAT (Kolkata) that such remuneration paid in conformity with the Companies Act is pursuant to employer-employee relationship. Merely since the remuneration is in the form of variable pay would not dilute or alter the employer-employee relationship.

Payments made to whole-time directors are in the nature of salary. Such factual position cannot be faulted in the absence of evidence to the contrary. When the learned adjudicating authority has allowed part of the demand (viz., the fixed pay) on the grounds of employer-employee relationship, it is infructuous to confirm the balance demand (viz., the variable pay) on the premise that directors have provided services to the company. Hence, there is no service tax liability on such payments.

[1] Excise Appeal No. 77570 of 2018; Final Order No.75561/2020 dated October 09, 2020

Comments

The aforesaid ruling (in the context of service tax) would apply in the GST regime too. However, many taxpayers fail to maintain proper documents as required under the Income-tax Act and the Companies Act, which weakens their stand.

Readers should distinguish the differential tax treatment for non-whole-time directors. For a detailed study, readers may refer the following article: http://vsrca.in/service-tax/director-remuneration/

Srinivasan V, Advocate

Recent Posts

EWB detention proceedings conclude on penalty payment, no need to issue order: Orissa HC

Orissa HC judgment dt. 18.02.2025 in W.P.(C) No. 3055 of 2025 Goods were detained &…

1 month ago

Refund limitation for GST wrongly paid

GST was paid but later clarified as not payable by a beneficial circular. In Messrs…

2 months ago

GST | Should 3 months be construed as 90 days for limitation?

Order of the Andhra Pradesh High Court [dated 05.02.2025, in Cotton Corporation of India vs.…

2 months ago

GST | Should the date of issue of notice/order be included to calculate limitation?

Order of the Patna High Court [dated 04.02.2025, in Brand Protection Services (P.) Ltd. vs.…

2 months ago

Notice/order can be served on the portal only if it cannot be served in person / by post / email: Madras HC

Order of the High Court of Madras [dated 06.01.2025, in Udumalpet Sarvodaya Sangham vs. Authority,…

2 months ago

Goods intercepted due to absence of e-invoice; proceedings to lie u/s.122 not s.129 CGST Act: HC

Order of the High Court of Kerala [dated 07.11.2024, in OSEL Devices Ltd. vs. Assistant…

4 months ago