Clay Craft India Pvt. Ltd. – 2020 (35) G.S.T.L. 580 (A.A.R. – GST – Rajasthan)

Services provided by the director as an employee to the company shall not constitute as Supply.

Facts: Directors are not employees of the company, remuneration/salary paid to directors is taxable under reverse charge mechanism and shall not be covered under para 1 of Schedule III of the CGST Act. The Applicant had on its board 6 directors who were drawing salary and working qua full-time employees being treated at par with other employees of the Applicant. The Applicant was deducting TDS on their salary and PF laws were also applicable; apart from which all other policies and benefits applicable to other employees as per the policy were also being given to the Directors.

Issue: Whether the salary paid to whole time director(s) is covered under Notification No. 13/2017 – Central Tax (Rate) dated 28 June 2017 to attract GST under Reverse Charge or covered under Entry no. 1 of Schedule – III of CGST Act, 2017 read with Section 7 of CGST Act, 2017 to fall outside the ambit of taxable supply?

Held: The Authority for Advance Ruling, in this matter, while holding that salary so paid to Directors is taxable under reverse charge observed that the consideration paid to directors is against the supply of services provided by them to the Applicant as directors are not the employee of the Company. It was further observed that Notification No. 13/2017 has given distinct identity to the services provided by the Director and specifically included in the category of service on which GST will be payable under RCM.

Earlier, Karnataka AAR in the matter of Alcon Consulting Engineers (India) P. Ltd. vide Order No. KAR ADRG 83/2019 dated 25 September 2019, also pronounced a similar ruling.

It is important to note that both the rulings are pronounced sans considering the concept of different types of director, as provided in Company Law, like Independent Director, Whole -Time Director, Managing Director, Executive Director, etc. and the capacity in which the services is being rendered by these directors to the Company.


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