2026-VIL-1557-CESTAT-ALH-ST
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SERVICE TAX CESTAT Cases

Service Tax - Classification of remuneration paid to Directors of company, Taxability of Director's compensation - Appellant paid monthly remuneration to its Directors which was accounted for as 'Salary' in the books of accounts, TDS under the Income Tax Act was deducted under the head 'Salary' as shown in Form-16, and the Directors had shown the amounts in their individual income tax returns under the head salary - Adjudicating Authority included the remuneration paid to Directors as part of the taxable value for Service Tax computation - Whether remuneration paid by a company to its Directors for performing their duties constitutes taxable services - HELD - Remuneration paid to Directors for performing their duties as Directors constitutes salary for employment services and is not taxable under Service Tax. The remuneration has been properly accounted for as 'Salary' in the company's books of accounts which is consistent with the withholding of TDS under Income Tax Act and the reporting by Directors in their individual income tax returns under the head 'Salary' - Employment-related payments including salary paid for performing duties as Directors are covered under the negative list in Section 65B(44)(b) of the Finance Act 1994 and are therefore excluded from the scope of taxable services. The character of payment as determined by the statutory treatment under the Income Tax Act and the accounting treatment by both payer and payee cannot be recharacterized by the tax authorities for Service Tax purposes. Therefore, remuneration paid to Directors cannot be included as part of taxable service value - The remuneration paid to Directors shall be excluded from the taxable value and the demand of Service Tax shall be recomputed accordingly excluding the Director compensation – The impugned order is set aside and the appeal is allowed - Invocation of extended period of limitation, Requirement for suppression of facts with deliberate and willful intent to evade payment of duty - Adjudicating Authority invoked the extended period on the basis of differences observed in figures in balance sheet, profit and loss account and Form 26AS statement from Income Tax Department - Whether the extended period of limitation can be invoked merely on the basis of discrepancies in financial records and non-filing of Service Tax returns without establishing deliberate and willful suppression of facts with intent to evade - HELD - The extended period of limitation can be invoked only where there is suppression of facts with deliberate and willful intent to evade payment of Service Tax. The term 'suppression of facts' must be construed strictly and does not mean any omission but requires a deliberate act - Mere non-disclosure or failure to file returns does not amount to willful suppression. There must be some positive act from the side of the assessee evidencing deliberate intention not to disclose correct information or willful intent to evade payment of duty - Appellant had maintained regular books of accounts and statutory records in the ordinary course of business and the data was always open to Department scrutiny. Department has failed to bring any corroborative evidence to establish willful suppression with intent to evade - The extended period cannot be invoked for confirming the demand merely on basis of financial discrepancies without establishing deliberate suppression with intent to evade. The invocation of extended period is not sustainable in law.
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