Companies start receiving notices asking details of director salary.
Even as authorities of advance rulings (AARs) differ on the liability to pay the GST on salaries paid by firms to directors, some states have already started issuing notices to companies asking them to provide details of the GST paid through reverse charge on such remunerations.
One of the notices seen by FE has been issued by the GST administration in Chhattisgarh to a company asking it to disclose the GST paid on the remuneration received by directors of the company since July 1, 2017. It fails to make any distinction between executive or non-executive directors.
The notice follows despite the Karnataka Bench of AAR ruling that came earlier this month, saying an executive director provides services to a company as an employee does to the employer, and the same can’t be treated as supply of services according to the GST Act. However, it said that a non-executive director, who doesn’t receive remuneration from the company as an employee and only gets fees for attending board meetings would be required to pay the GST on such fees through the reverse charge mechanism.
In April, the Rajasthan Bench of AAR had ruled that remuneration paid to directors of a company would be subject to the GST. The ruling was contradicted by the Karnataka AAR a month later.
Although AAR ruling is applicable only to applicants who seek clarity on interpretation of laws, experts said GST authorities are taking conginazance of such ruling while issuing notices in similar matters.
Divergent views on taxation of director salary by two state advance ruling authorities were already enough of a nuisance for taxpayers. Adding to the woes of taxpayers, officers under other jurisdiction have already initiated issuing notices to taxpayers on the same issue.
To deal with conflicting ruling by two state AARs, the GST Council in December 2018 had approved setting up of a centralised Appellate Authority for Advance Ruling. This was ratified by the Cabinet a month later.
In my view, GST Council need to take a policy decision and then CBIC need to issue circular/notification to the effect that Salary form of remuneration paid to Director shall be outside GST and other forms of remuneration should be within GST.
Whole time director is also fall under definition of employee. Remuneration paid to whole time director is outside the preview of Gst. Department should issue the circular.
Further issuing notices to company during such crises is really silly action by department and that is again on wrong issue.
In my view AARs should have a judicial member mandstorily. In the absence of a judicial member the present two members who are from Revenue service of Central and State govts going berserk to contribute their might to the Exchequer
throwing the judicial principles to wind. AARs are proving themselves to be a formality, better to avoid.