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FAQ on Service provided by Directors to Company
The CBEC has issued
Notification No. 45/2012-ST dated 7-8-2012,
Notification No. 30/2012-ST dated 20-6-2012
and expanded the scope of reverse chargemechanism. With effect from 7-8-2012, services provided by the director to the company will becovered under the reverse charge mechanism.We have summarized frequently asked question(s) in this regard for easy understanding:
Query: - Is service tax applicable for services provided by all Directors of aCompany?
Service provided by
Managing and Whole-time Directors/ Executive Directors
(thosewho are under employment with the Company)
are governed by the exclusion clause
contained in the definition of ‘service'
under Section 65B (44) (b)
which provides that serviceprovided by employees to their employers in the course of or in relation to employment areexempt from service tax.Service provided by Part-time/ Expert/ Independent/ Nominee directors, etc.,
(those who arenot under employment with Company)
, are in the nature of providing their professional/expert services to the company. Hence, the said Services would be chargeable toService tax under Reverse charge by the Company w.e.f 07.08.2012.
Query: - What will be the service tax liability of the Directors for the periodJuly 1, 2012 to August 7, 2012?
Notification No. 45/2012 is effective from 07.08.2012
i.e. date of Reversecharge mechanism will be effective. In other words, Service provided by Part-time/ Expert/Independent/ Nominee directors, etc.,
(those who are not under employment withCompany)
to Company will be taxable from 1st July 2012 to 6th August 2012 in the hands of said Director as there was no reverse charge mechanism for stated period.
Query: - Whether the Directors have to obtain registration and pay servicetax for the month of July 2012?
Yes, it looks like that such Directors providing taxable services to the company will haveto obtain registration and pay service tax for the month of July, 2012 and for the six days of August, 2012.It may be noted that services provided by the directors was not taxable up to July 1, 2012.However, if the value of other taxable services rendered by them during Financial Year 2011-12 isless than
10 lakhs, they can claim exemption up to
10 lakhs during 2012-13 if the value of services provided by them to the companies and other taxable services, if any, provided by them,is not exceeding
10 lakhs. This exemption is as per Notification 33/2012 dated 20.06.2012 andsubject to the conditions prescribed therein.
Query: - Whether the service tax thus paid by the Company under reversecharge w.e.f 07.08.2012 can be availed as Cenvat credit?
Eligibility of Cenvat credit of service tax is to be decided with reference to the definitionof input service under the
Cenvat Credit Rules, 2004.
Normally, the services provided byDirectors should be an eligible input service for a manufacturer or a service provider and Cenvat