2026-VIL-1293-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax – Taxability of remuneration paid to Managing Directors and Whole-time Directors under Reverse Charge Mechanism – Whether remuneration paid to Managing Directors and Whole-time Directors represents consideration for taxable services or salary paid in course of employment and whether service tax under Reverse Charge Mechanism is applicable – HELD – Once existence of employer-employee relationship is established, charging provisions of service tax cease to operate and RCM provisions become inapplicable. The Section 65B(44)(b) specifically excludes services provided by employee to employer in course of employment from definition of service – The undisputed facts on record that Managing Directors and Whole-time Directors were appointed by Board resolutions approved by shareholders in accordance with Companies Act, their remuneration consisted of salary and employment benefits, TDS was deducted under Section 192 applicable only to salary income, Form-16 was issued and provident fund contributions deposited, it clearly demonstrates that company itself treated remuneration as salary arising from employer-employee relationship – CBIC Circular No. 115/9/2009-ST dated 31.07.2009 clarified that remuneration paid to Managing Directors and Whole-time Directors acting in such capacity would not attract service tax – Merely because directors are promoters or shareholders does not distinguish their separate legal capacity as employees. Income Tax Department's acceptance of TDS deduction treating remuneration as salary is relevant and indirect tax authorities cannot adopt inconsistent stand – Remuneration paid by company to Managing Director and Whole-time Directors constitutes salary in employer-employee relationship falling within exclusion of Section 65B(44)(b) and no service tax was payable under RCM – The impugned order is upheld and the Revenue appeal is dismissed
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