Service Tax liability of Salary of Managing Director

The writer has extracted clause (b) of section 65B(44), which clearly excludes services provided by an employee to the employer outside the scope of "service" as defined in the FA 1994. Typically, an MD, though a part of the Board of Directors, works in dual capacity - one, that of an employee, the other that of a director. The agreements between the companies and the incumbents show that they are paid regular salary and perks just as in the case of other employees of the company. In addition, they also earn commission based on the sales or the profit earned by the company. There can be no objection to charging service tax on the sitting fees, or commission earned by MDs. But, how can Revenue justify charging service tax on the salary of MD, when his relationship with the company as an employee is outside the scope of charging provision? This is a plain misconstruction of the statutory provisions.

Gururaj B N 24/08/2015