Pradeep Jain - Chartered Accountant

Query

(MANISH THAKKAR) Posted On: 10 Aug, 2012

Vide Noti No. 45/2012 dtd 07.08.2012 , now company is liable to pay service tax under reverse charge on services received from Directors of the company. Your Expert views are solicited to enlighten us that which services provided by directors are taxable to the company? Type of services for consideration 1. Amount paid as Remuneration to directors 2. Amount paid as commission / incentive to directors which is a part of total remuneration 3. Amount paid as commission / incentive to directors which is not a part of total remuneration 4. Amount paid on behalf of directors in kind like their personal insurance prem, vehicle prem, medical prem other perquisites 5. Other considerations paid Further, please confirm that can the company avail cenvat credit of service tax paid on aforesaid service for payment of service tax?

1.Applicability of service tax on Directors Section 66(b) defines “Service” as follows “Service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) An activity which constitutes merely, (i) A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) Such transfer, delivery or supply of any goods which is deemed to be sale with the meaning of clause 29(A) of article 366 of the Constitution; or (iii) A transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force.” Accordingly the services performed by a director (other than a provision of service by an employee to the employer in the course of or in relation to his employment) of a company fall within the ambit of taxable services with effect from 1st July, 2012. It means service tax would be applicable on Services provided by Independent/Non-Executive Directors of the Company (NEDs) because Managing Director/Executive Director/Whole time Director is the employee of company. But if any amount paid to Managing Director/Executive Director/Whole time Director which is not covered under “a provision of service by an employee to the employer in the course of or in relation to his employment” will be taxable. Therefore for in case of independent directors service tax will be applicable and for Managing Directors/Executive Directors, service tax may be applicable if amount paid other than “in the course of employment”. Managing Director/Executive Director/Whole time Director: 1. Amount paid as Remuneration to directors (excluding those amount which is not in course of employment):- will not be taxable. 2. Amount paid as commission / incentive to directors(whether included in remuneration or not):- Since it is amount not covered under the above mentioned exclusion (i.e. not covered under “during the course of employment) will be taxable. 3. Other consideration:- Taxable if not treated as charges during the course of employment. So the taxability will be dependent on whether there is “a provision of service by an employee to the employer in the course of or in relation to his employment” or not. 2.Input credit of service tax on service provided by directors Rule 2(l) defines “input service” and according to this company can take the credit of service tax paid on services provided by directors but input service excludes “services used primarily for personal use or consumption of any employee”. So service tax on director’s personal expenditure (paid by company) e.g. insurance premium, vehicle premium, medical premium etc. will not be eligible for credit.

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