ST - If an amount paid by appellant to Alan Van Niekerk is considered as salary by IT Dept., it cannot be held by ST Dept., another branch of MF, DR, as amount paid for consultancy charges and taxable under FA, 1994: CESTAT
By TIOL News Service
MUMBAI, MAY 20, 2016: THE appellant is engaged in manufacturing activity and were receiving various taxable services from their foreign based service provider and were paying service charges to them during the period prior to 17.04.2006 and upto 31.10.2006.
Pursuant to an investigation, a SCN dated 16.04.2008 was issued to the appellant demanding Service Tax from 2002-03 till 31.10.2006 under the category of 'Management Consultancy Services' and under Reverse charge mechanism.
The adjudicating authority dropped the ST demand for the period prior to 18.04.2006, following the law laid down by the Supreme Court in the case of Indian National Ship Owners Association - 2009-TIOL-129-SC-ST, but confirmed the demand raised after 18.04.2006 till 31.10.2006 on a finding that service tax liability arises under Reverse charge mechanism for the payment made to Mr. Alan Van Niekerk.
Before the CESTAT, the appellant submitted that the adjudicating authority had erred in holding that Mr. Alan Van Niekerk was not an employee prior to November 2006; that the amount paid by the appellant to said Alan Van Niekerk, was a salary for the period 18.04.2006 to 31.10.2006. The appellant also produced the agreement entered with the said Alan Van Niekerk and submitted that he was the first director of the appellant company. Minutes of the meeting of Board of Directors held on 22nd September 2005, wherein Mr. Alan Van Niekerkwas appointed as first director of the appellant is also produced. The appellant further drew the attention of the Bench to the content downloaded from the official site of Ministry of Company Affairs to indicate that Alan Van Niekerk was director of the company/appellant from 27.02.2001; tax invoice raised by Mr. Alan Van Niekerkas consultancy fees which was nothing but a fee paid to the director as salary. The notice issued by the Income Tax Department holding that the amount paid to Mr. Alan Van Niekerk should be considered as salary and the same is taxable income in the hands of the appellant was also adduced as proof of their stand.
The AR submitted that the invoices raised by Mr. Alan Van Niekerk indicated that they are paid for the consultancy charges and not as salary and that the papers produced before CESTAT were not submitted before the lower authorities.
The Bench observed -
"7. On perusal of the agreement with Mr. Alan Van Niekerk, we find that the said agreement is between appellant and one Mr. Alan Van Niekerk for rendering the services to appellant on the management of market and exclusive services. The said agreement provides for payment of an amount as monthly remuneration of Mr. Alan Van Niekerk and as also additional amount at the discretion of the board as percentage to Alan Van Niekerk. It is seen from the records and more specifically the balance sheet at 31-7-2007, Mr. Alan Van Niekerk has signed the balance sheet of the appellant as director on behalf of the board of directors. In our considered view, Mr. Alan Van Niekerk was a director in the appellant's company and the amount which is paid to him during the period 18-04-2006 to 31-10-2006 was a remuneration as per agreement between the appellant and the said individual. We also fortified in our view, by the demand issued by Income Tax department for this amount paid to Mr. Alan Van Niekerk to be considered as salary paid. The Income Tax Department has considered this amount paid to the appellant to Mr. Alan Van Niekerk as a salary in adjudication proceedings. The adjudicating authority in the case in hand has summarily dismissed the submissions. If an amount paid by the appellant to Mr. Alan Van Niekerk is considered as a salary by the Income Tax Department, a branch of Ministry of Finance, Department of Revenue, it cannot be held by the Service Tax Department, another branch of Ministry of Finance, Department of Revenue, as amount paid for consultancy charges and taxable under Finance Act. The same department of Government of India cannot take different stand on the amount paid to the very same person and treat it differently. In our considered view, the amount which is paid to Mr. Alan Van Niekerk, in the circumstances of this case as brought out herein above, has to be treated as salary to the director and the salary is not to be considered as to fall under the category of 'Management Consultancy Services' and liable for Service Tax."
The impugned order was set aside and the appeal was allowed with consequential relief.
(See 2016-TIOL-1199-CESTAT-MUM)
