REVERSE CHARGE FOR DIRECTORS SERVICES

Service Tax is payable under reverse charge by the companies who receive services from their directors who are not in employment in terms of Rule 2(i)(d)(EE) of Service Tax Rules and Entry No. 5A of Notification No. 30/2012-ST dated 20.06.2012 (as amended by Notification No. 45 and 46/2012-ST dated 7.8.2012).
Only individuals can become directors as per section 253 of the Companies Act, 1956, No body corporate, association or firm shall be appointed director of a company and only an individual shall
be so appointed. However, individuals can be nominees of any company, association or any other entity including Government.

Like in case of any Indian director, the services of any foreign director are also liable to Service Tax which shall be discharged by the company itself under reverse charge mechanism.

A director may be appointed either in an individual capacity or to represent an entity (including government) who has either invested in the company or is otherwise authorized to nominate a director. When a director receives payment in his personal capacity, the same is liable to be taxed in the hands of the director. However, where the fee is charged by the entity appointing the director and is paid to such entity, the services shall be deemed to be supplied by such an entity and not by the individual director.

In the case of Government nominees, the services shall be deemed to be provided by the Government and liable to be taxed under the exclusion sub-clause (iv) of clause (a) of section 66D of the Finance Act, 1994 i.e. support services by Government to business. Such services are liable to be taxed on reverse charge basis.

During the period from 1.7.2012 to 6.8.2012 (both days inclusive), the liability to pay Service Tax has to be discharged by the concerned director himself and not by the company. However, he/she shall be eligible for threshold exemption of ? 10 lakh in terms of Notification No. 33/2012-ST dated 20.06.2012.

Entire amount (100 per cent) of Service Tax shall be payable by the company under reverse charge mechanism. Companies shall have to register themselves under service tax before making payment of service tax on services provided by directors under reverse charge mechanism.

Where a person is a director in more than one company, whether all the companies in which he/she is a director, though the service provider is the same person (non-employed director himself), all the companies in which he is a director and are paying remuneration to him, shall be liable in their respective capacity to pay service tax on director's remuneration on reverse charge basis. This would also apply to subsidiary companies of the holding company.

The word 'company' should mean the company as defined in the Companies Act, 1956/ 2013. Director of a cooperative bank shall not be covered under reverse charge as cooperatives are not companies. In such case, directors themselves shall be liable to discharge Service Tax liability.

On a director requesting the company to pay Service Tax himself rather than the company paying under reverse charge mechanism, nobody stops him from requesting the company but the law, as it stands is very clear. Service Tax has to be paid by the person liable to pay in terms of section 68(1) and 68(2) and there cannot be any deviation from the statutory provisions. However, there have been instances where Tribunal have held that Service Tax cannot be demanded twice on the same service [Refer Navyug Alloys Pvt. Ltd. v. CCE & C 2008 (8) TMI 100 - CESTAT AHEMDABAD; Invincible Security Services v. CCE 2008 (9) TMI 122 - CESTAT NEW DELHI.

In Angiplast (P.) Ltd. v. CST, Ahmedabad 2013 (4) TMI 552 - CESTAT AHMEDABAD, where assessee paid freight charges but did not discharge service tax liability under reverse charge and enclosed requisite certificates indicating the discharge of liability by service provider and balance by themselves, it was held that since the providers had categorically stated their liability and mentioned their service tax registration number, revenue was expected to call for details from the concerned authorities Department cannot shift the entire blame on the assessee. Having not done so, assessee could not be made liable to pay any service tax and demand was set aside. [Navyug Alloys Pvt. Ltd. v. CCE & C 2008 (8) TMI 100 - CESTAT AHEMDABAD followed].

W.e.f. 11.07.2014, directors of body corporate would also be covered in terms of changes made in Service Tax Rules vide Notification No. 9/2014-ST dated 11.07.2014 and by Notification No.10/2014-ST dated 11.07.2014 in Notification No. 30/2012-ST dated 20.06.2012.

Body corporate has been defined in Companies Act, 1956 / 2013. Accordingly, w.e.f. 11.07.2014, services of directors of body corporate to body corporate shall also be covered under reverse charge mechanism.