Service Tax on Directors' Services brought under reverse charge

Vide Notification 46/2012 and 45/2012 dated 7-8-2012, on service provided by director to a company service tax has been imposed on reverse charge basis i.e. company shall be liable to pay 100 % service tax.

It is worth while to note that services provided by executive director or managing director are covered by employer and employee relationship and hence not taxable. Hence service provided by non executive director shall only be subject to service tax u/s 68(2).
However meeting fee might come into reverse charge, whether recepient is executive or non executive director

The Notification No. 115/09/2009, dated 31.07.2009 is to be seen in this regard.  In some litigation the functions of the directors were brought in the ambit of ‘business auxiliary services’ and ‘management consultant services’ by the department but the cases were decided against the Department.   Hence the Department issued a Notification (supra) in which it considered the matters and issued the clarifications as under-

• Some companies made payments to Managing Directors/Directors (Whole time Director or Independent Director) terming the same as ‘commission’.   The said amount paid by a company to their Managing Directors (whole time or independent)  even if terms as commission is not the ‘commission’ that is within the scope of business auxiliary services and hence service tax would not be leviable on such amount;
• The Managing Director/Directors (whole time or independent) being part of board of directorsperform management function and they do not form consultancy or advisory function.   The definition of management consultancy service makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management function.   The payments made by companies to Directors cannot be termed as payments for providing management consultancy service.   Therefore, it is clarified that the amount paid to Directors (whole time or independent) is not chargeable to service tax under the category ‘Management Consultancy Service’.   However, in case such directors provide any advice or consultancy to the company, for which they are being compensated separately, such service would become charge to service tax.