REFUND OF CENVAT CREDIT UNDER RULE 5 CANNOT BE DENIED ON PROCEDURAL GROUNDS: CESTAT IN MS CLAY CRAFT (INDIA) PVT. LTD.

REFUND OF CENVAT CREDIT UNDER RULE 5 CANNOT BE DENIED ON PROCEDURAL GROUNDS: CESTAT IN MS CLAY CRAFT (INDIA) PVT. LTD

Rajasthan Appellate Authority for Advance Ruling (AAAR),

Goods and Services Tax

Case Title: Ms Clay Craft (India) Pvt. Ltd., Jaipur v. Commissioner of CGST, Jaipur

Order No. . RAJ/AAAR/01/2020-21
Date of Judgment/Order- 2nd July 2020

Para No. 2. The present appeal has been filed under Section 100 of the Central GST Act, 2017 (hereinafter also referred to as ‘the CGST Act’) read with Section 100 of the Rajasthan GST Act, 2017(hereinafter also referred to as ‘the RGST Act’) by M/s. Clay Craft (India) Pvt. Ltd., F-766 A, Road No. 1-D, V.K.I. Area, Jaipur, Rajasthan 302013(hereinafter also referred to as ‘the Appellant’) against the Advance Ruling No. RAJ/AAR/2019-20/33, dated 26.02.2020.

BRIEF FACTS OF THE CASE

Para No. 3.4 In the backdrop of above circumstances, the appellant reconsidered the situation afresh and approached to Rajasthan Authority of Advance Ruling for clarification on the matter and put up the following question for their kind consideration:

a) Whether GST is payable under Reverse Charge Mechanism (RCM); the salary paid to Director of the company who is paid salary as per employment contract, after deduction of TDS as well as PF.

b) Whether the situation would change from (a) above if the Director also is a part time Director in other company also.

Para No. 3.5 The Authority of Advance Ruling, Rajasthan given Ruling No. RAJ/AAR/19-20/33 dated 26.02.2020 as under:
a) The consideration paid to the Directors by the applicant company will attract GST under reverse charge mechanism as it is covered under entry No. 6 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the CGST Act, 2017.
b) Situation will remain same as (a) above and will attract GST under reverse charge mechanism.

Para No. 3.6 Aggrieved by the aforesaid Ruling, the appellant has preferred the present appeal before this forum.

DISCUSSION AND FINDINGS

Para No. 6.1 We have carefully gone through the Appeal papers filed by the Appellant, the ruling of the AAR, as well as oral submissions made at the time of the personal hearing held on 25.06.2020. We find that the appellant had requested for Ruling on leviability of GST under Reverse Charge Mechanism (RCM) on the salary paid to Director of the company who is paid salary as per employment contract, after deduction of TDS as well as PF.
Para No. 6.2 The Rajasthan Authority for Advance Ruling (AAR) in its Ruling No. RAJ/AAR/2018-19/33 Dt. 26.02.2020 pronounced that the consideration paid to the Directors by the applicant company will attract GST under reverse charge mechanism and the situation will remain the same if the director is also a part time director in another company.
Para No. 6.3 We find that the CBIC has recently issued a Circular No. 140/10/2020-GST dated 10.06.2020 under File No. CBEC-20/10/05/2020 -GST and clarified the issue in appeal. It has been clarified that (i) remuneration paid by companies to the independent directors or those directors who are not the employee of the said company is taxable in hands of the company, on reverse charge basis; and (ii) the part of Director’s remuneration which are declared as “Salaries in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.
Para No. 6.4 In Para 5.4 of the above Circular, it is further clarified that the part of employee Director’s remuneration which is declared separately other than “salaries” in the Company’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable. Further, in terms of notification No.13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis. 
Para No. 6.5 Hence, we find that remuneration, if any, paid by the appellant to the independent directors or those directors who are not the employee of the appellant is taxable in hands of the appellant, on reverse charge basis. Further, the part of Director’s remuneration which are declared as Salaries in the books of the appellant and subjected to TDS under Section 192 of the IT Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017. The part of employee Director’s remuneration which is declared separately other than “salaries” in the appellant’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable and in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the appellant, is liable to discharge the applicable GST on it on reverse charge basis.
Para No. 7. In view of the legal position discussed above, the appeal stands disposed of in the above terms.