MCA Clarification on Service Tax

-
Notifications 45/2012 and 46/2012 dated 07/08/2012, Service Tax on reverse
charge mechanism was imposed on services rendered by directors to companies
(i.e. the recepient company has to pay the entire the Service Tax due on
remuneration paid / payable to its directors).

Doubts arose
among corporates and tax consultants as to whether remunerations to WHOLE TIME
DIRECTORS (I.e. Managing
Director / Executive Directors) are
covered under these notifications

The General Circular No. 23/2012 dated 09/08/2012 issued by Ministry of
Corporate Affairsbrings some respite.

Though the
above general circular is issued in the context of 'Managerial Remuneration'
under the Companies Act, it clarifies a vital issue as under:
"The NON
WHOLETIME DIRECTORS of the company are presently NOT COVERED(emphasis) under the
exempted list and as such the sitting fee / commission payable to them by the
company is liable for Service Tax"




From the above clarification we can draw the following
inference:
* · WHOLE TIME DIRECTORS (Managing Director / Executive Directors) fall under the negative / exempted list of Service Tax and
* · Hence remuneration paid / payable to them by the company won't attract Service Tax

The general
circular is pasted below. Please acknowledge the receipt and give your valuable
comments.



GENERAL
CIRCULAR NO
23/2012,
Dated: August 9, 2012
Sub: Applicability of Service
Tax on commission payable to Non-Whole Time Directors of a company under
section 309(4) of the Companies Act, 1956 - approval of Central Government
under section 309/310 of the Companies Act-regarding.
The Finance Act 2012 has introduced
Service Tax which is applicable to anyone who provides a Service not covered
under the negative/exempted list and if the value of annual revenue is more
than Rs.10 lakh. The Non-Whole Time Directors of the Company are presently not
covered under the exempted list and as such, the sitting fee/commission payable
to them by the company is liable to Service Tax.
If such Service Tax is paid by the
company, it will be deemed to be a part of remuneration under section 198 of
the Act and would accordingly increase the remuneration amount of such
Non-Whole Time Directors. This remuneration could then exceed the limit of 1%
profit [u/s 309(4)] of the company when the company has a Managing/Whole Time
Directors/Managers or. 3% of the profit [u/s 309(4)] of the company if the
company does not have a Managing/Whole Time Directors/Managers, as the case may
be. As per existing provisions of the Companies Act, 1956, this would require
prior approval of Central Government u/s 309 and 310 of the Act.
It has now been decided that any
increase in remuneration of Non-Whole Time Director(s) of a company solely on
account of payment of service tax on commission payable to them by the company
shall not require approval of Central Government under section 309 and 310 of the
Companies Act even if it exceeds the limit 1% or 3% of the profit [u/s 309(4)]
of the company, as the case may be, in the financial year 2012-13.
F.No.14/33/2012-CL.VII
(L K
Trivedi)

Under Secretary to the Govt. of India
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