Reverse charge on directors remuneration

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Manikandan

Manikandan (Querist)

17 February 2014 Is Reverse service tax applicable on whole time director

Ganeshbabu K

Ganeshbabu K (Expert)

18 February 2014 Service tax is not payable in case of Managing Director or wholetime director or executive director, if the director is in full time employment of the company.
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Service tax is payable on services provided by non-executive, nominee and independent directors to the company w.e.f. 1-7-2012.

Ganeshbabu K

Ganeshbabu K (Expert)

18 February 2014 Section 65B(44) of Finance Act, 1994 as introduced w.e.f. 1-7-2012 reads 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) – - (b) a provision of service by an employee to the employer in the course of or in relation to his employment (c) – - .

Thus, services provided by employee to employer have been excluded from the definition of ‘service’ itself.
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Ganeshbabu K

Ganeshbabu K (Expert)

18 February 2014 It is true that rule 2(1)(d)(EE) of Service Tax Rules inserted w.e.f. 7-8-2012 use the words ‘in relation to service provided or agreed to be provided by a director of a company to the said company, the recipient of such service; shall be person liable for paying service tax.

Notification No. 30/2012-ST dated 20-6-2012 makes provisions relating to reverse charge. Para 1(A)(iva) of Notification No. 30/2012-ST dated 20-6-2012 (as amended w.e.f. 7-8-2012)also uses the same words.

Reverse charge provisions can apply only if a service is otherwise taxable. If a service is not taxable, it cannot be made subject to service tax, as reverse charge provisions are only for collection and payment of service tax. The reverse charge provisions cannot create a service tax liability which is not there under service tax provisions.

Hence, if there is employee-employer relation, then there is no service tax and hence no question of reverse charge can arise.

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