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

60 days time limit to pass GST refund order is mandatory: Calcutta HC

Decision / Observations [Order of the Hon'ble High Court of Calcutta, dated 30.07.2025, in M.A.T.…

3 months ago

CA certificate for receipt of net forex acceptable in lieu of FIRCs: Gujarat HC

Facts The Petitioner, engaged in export of services, had claimed refund of unutilized GST Input…

4 months ago

Why right to cross-examination is not unfettered: Delhi HC

[Order of the Hon'ble High Court of Delhi, dated 09.04.2025, in W.P. (C) No. 4576…

6 months ago

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 &…

8 months ago

Refund limitation for GST wrongly paid

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

9 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.…

9 months ago