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PJ/CASE LAW/2014-15/2546

Whether director of company can be made liable for service tax payable by company ?

Case:-  BHAVNA JAYANTIBHAI DESAI VERSUS COMMISSIONER OF C. EX. & S.T., RAJKOT
 
Citation:-  2015 (37) S.T.R. 385 (Tri.- Ahmd)

Brief facts:- This appeal has been filed by the appellant against OIA No. RJT-XCUS-OOO-APP dated 13-3-2014. Shri P.M. Dave (Adv.) appearing on behalf of the appellant argued that this is the second round of litigation as in the earlier proceedings demands were confirmed against the appellant as proprietor of M/s. Bombay Garage (Rajkot) Pvt. Ltd. and the order passed by the first appellate authority was set aside under Order No. A/10883/WZB/AHD/2013, M/13412/WZB/AHD/2013, dated 17-7-2013 [2014 (33)S.T.R. 175 (Tribunal)] passed by this Bench holding that the Service Tax from the appellant cannot be demanded as she is not the proprietor of M/s. Bombay Garage (Rajkot) Pvt. Ltd. That after the order dated 17-7-2013 passed by this Bench another show cause notice dated 20-9-2013 was issued to M/s. Bombay Garage (Rajkot), Pvt. Ltd., and the demand was again confirmed upon the appellant as Director of M/s. Bombay Garage (Rajkot) Pvt. Ltd. It was the case of ld. Advocate appearing on behalf of the appellants that Service Tax liability of M/s. Bombay Garage (Rajkot) Pvt. Ltd. cannot be confirmed against the appellant as she is only working as a Director of M/s. Bombay Garage (Rajkot) Pvt. Ltd. and is only earning a salary of Rs. 25000/- per month and is not liable to pay any Service Tax confirmed against her.

Appellant’s contention:- It was argued by him that M/s. Bombay Garage (Rajkot) Pvt. Ltd. is a separate legal entity and the present appellant has only entered into the agreement with BPCL as being the Director of Bombay Garage (Rajkot) Pvt. Ltd. That the appellant has only signed the agreement as a Director on behalf of the Company and cannot be held responsible for payment of Service Tax.

Respondent’s contention:- The Revenue made the Bench go through the service contract dated 1-4-2010 between the Bharat Petroleum Corpn. Ltd. (BPCL) and Mrs. Bhavana Jayantibhai Desai,  Director of M/s. Bombay Garage (Rajkot) Pvt. Ltd. It was his case that the contract is entered between BPCL and the appellant Bhavnaben Jayantibhai Desai and she is responsible for payment of Service Tax as has been correctly held by the lower authorities.

Reasoning of judgment:- Heard both sides and perused the case records. It is observed from the Show Cause Notice dated 20-9-2013 that M/s. Bombay Garage (Rajkot) Pvt. Ltd. have been referred to as the “Noticee” and the address of the company is shown in the show cause notice. Even Para 11 of the show cause notice dated 20-9-2013 calls upon Bombay Garage (Rajkot) Pvt. Ltd. to show cause why the demand should not be confirmed against them and as to why penalties under various provisions of the Finance Act, 1994 should not be imposed upon M/s. Bombay Garage (Rajkot) Pvt. Ltd. Nowhere in the Show Cause Notice Bhavna Jayantibhai Desai (the present appellant) has been called upon to show cause. However, the opening sentence of the brief facts in the order-in-original dated 31-3-2013 indicates M/s. Bhavana Jayantibhai Desai as the proprietor of M/s. Bombay Garage (Rajkot) Pvt. Ltd. and demand of Service Tax is confirmed against her when in para 13 of OIO dated 31-3-2013 contains the stand of the appellant that she is only an operator and company is responsible for payment of Service Tax. This issue raised by the appellant has neither been deliberated upon by the adjudicating authority nor the first appellate authority under OIA dated 13-3-2014. It is observed from the contract dated 1-4-2012 entered between BPCL and M/s. Bombay Garage (Rajkot) Pvt. Ltd. that Ms. Bhavna Jayantibhai Desai is signing on behalf of the M/s. Bombay Garage (Rajkot) Pvt. Ltd. as a Director which is confirmed in her statement dated 12-9-2012 stating that she is receiving a salary of Rs. 25000/- per month for rendering services and is not required to pay any Service Tax. As the issue involved in the present proceedings lies in a narrow compass, therefore, after allowing the stay application, appeal is taken-up for disposal.
 
In view of the facts available on records it is observed that the appellant, signing the contract as the Director of the Bombay Garage (Rajkot) Pvt. Ltd., cannot be held as the service provider. Therefore, no demand can be confirmed against the present appellant when the original show cause notice dated 20-9-2013 was issued to M/s. Bombay Garage (Rajkot) Pvt. Ltd., Rajkot and by no stretch of imagination it can be considered that the Director of a Pvt. Ltd. Company is the service provider in the present case.
 
Based on the above observations, appeal filed by the appellant is allowed by setting aside the order dated 13-3-2014 passed by the first appellate authority.
 
Decision:-Appeal allowed.

Comment:- The crux of the case is that the director functioning on behalf the company cannot be considered as service provider. It is the company that itself is liable for paying service tax for the services provided by it and not the director.   

Prepared by:Kushal Shah

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