01 November 2013
Dear Sir, The manufacturing unit of a small private limited co. (turnover around 1.5 crore per year) is audited for EA 2000. In the Balance sheet of company, an amount Rs. X,XX,XXX/- is given against "Directors Remuneration" for year 2011-12 and 2012-13. The auditor has asked to pay the Service tax on this Remuneration for these two years.
My query is as follows 1) Is it necessary to pay this as per Service tax notifications ? for 2 years 2) Can the factory avoid this large amount of payment showing employee - employer relation between directors and company but the balance sheet wording is "Remuneration". 3) If factory pay this big amount, Is it eligible for credit in excise and can be utilised for clearance of finished goods.
05 November 2013
With effect from 01-07-2012 the scope of service tax coverage changed drastically. The Concept of Negative List of Services, Reverse Charge Mechanism, etc. came into effect.
Under the Reverse Charge Mechanism, 100% of the Service Tax Due on Director's Services is to be paid by the service recipient i.e. the company. However, services rendered by executive directors and whole-time directors are outside the purview of this provision since such directors are employees of the Company. Generally in private limited companies, the directors look after the day to day affairs of the Company and hence they may be said to be whole time directors. The same should be the facts in your case. Therefore in response to the EA Audit query please submit in writing that these directors who were paid remuneration are whole-time directors and hence RCM on Directors' Services are not applicable to the remuneration paid to them.
CAclubindia
