Payment To Non-Employed Director As Sitting Fees Is Not Salary, Hence Liable To Service Tax: CESTAT

The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that the payment made to a non-employed director as director's sitting fees is not in the nature of salary; hence, the director's fees are liable to the levy of Service Tax.

The Bench consists of Ramesh Nair (Judicial Member) and Raju (Technical Member), considered the issue of whether the assessee is liable to pay Service Tax under reverse charge mechanism on the Directors remuneration paid to the whole time Director who are employed with the company and also non employed Directors to whom the sitting fees is paid.

The assessee submitted that regarding the payment made to the whole-time Director, who is employed with the company, the said remuneration was paid as salary and treated as such for the purposes of income tax, with TDS deducted. This is also evident from the Director's income tax return.

Regarding the non-employed Directors, who are paid sitting fees, the assessee submitted that they do not dispute the tax liability for these Directors. Accordingly, the assessee has discharged the Service Tax on the remuneration paid to the non-employed Directors. However, the lower authorities did not consider this, citing a lack of proper correlation. The assessee has submitted Annexure-C along with their synopsis, which clearly shows that Service Tax has been paid on the remuneration paid to the non-employed Directors.

The Tribunal observed that any remuneration paid to a whole-time director in the form of salary is not liable to service tax. However, payment made to a non-employed director as sitting fees is not considered salary; therefore, such fees are subject to service tax.

The bench stated that “…….as regard the payment made to non-employed director as a director sitting fees since the same is not in the nature of salary, the director fees is liable to levy of Service Tax. The assessee has not disputed the Service Tax liability in respect of the remuneration paid to such directors.”

The Tribunal reviewed the reconciliation chart produced by the assessee to establish a proper correlation regarding the payment of service tax and observed that, according to the chart, the assessee has discharged the service tax. However, this needs to be verified by the adjudicating authority.

The Bench remanded the matter to the adjudicating authority to verify the correctness of the reconciliation related to the service tax demand on the remuneration paid to non-employed directors.

In view of the above, the Tribunal allowed the appeal.

Counsel for Appellant/ Assessee: Abhay Y Desai

Counsel for Respondent/ Department: Anoop Kumar Mudvel

Case Title: Jsl Industries Ltd. v. Commissioner of C.E. & C.-Anand

Case Number: Service Tax Appeal No. 10662 of 2017 - DB

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