Rajasthan Authority for Advance Ruling – Salary Paid to Directors is liable to GST under Reverse Charge?

Matters on which ruling is sought

• Whether GST is payable under Reverse charge Mechanism on the salary paid to Director of the company who is paid salary as per contract?
• Whether the situation would change from (a) if the Director also is a part time Director in other company also.

Submission made by Applicant:

• Services by an employee to the employer in the course of or in relation to its employment are outside the ambit of GST vide entry No. 1 of Schedule III of CGST Act, 2017.
• Further, applicant gave references of various cases wherein services rendered by directors were also considered at par to that of an employee of company.

Observations and Findings: 

• Authority observed that various case references given by applicant are not relevant in present case, and consideration in form of salary and commission paid to directors is against the services provided by Directors to Company, therefore, same would be liable to GST under Reverse charge Mechanism, since services given by Directors to a company are covered under Entry 6 of Notification 13/2017-Central Tax (Rate) dated 28.06.2017.
• And situation will remain same as (a) above and will attract GST under reverse charge mechanism.

 Author comments

The principle provisions under GST are the same as of Service tax regime in so far it is related to taxation of services of Director under RCM, and there were no such questions by the department then. The Govt. should come up with some more clarity on this issue so that tax authorities do no take leverage of the advance ruling and issue demands on the entities.

Source: RAJ/AAR/2019-20/33