Even as authorities of advance rulings (AARs) differ on the liability to pay the GST on salaries paid by firms to directors, some states have already started issuing notices to companies.
In April, the Rajasthan Bench of AAR had ruled that remuneration paid to directors of a company would be subject to the GST
Even as authorities of advance rulings (AARs) differ on the liability to pay the GST on salaries paid by firms to directors, some states have already started issuing notices to companies asking them to provide details of the GST paid through reverse charge on such remunerations.
One of the notices seen by FE has been issued by the GST administration in Chhattisgarh to a company asking it to disclose the GST paid on the remuneration received by directors of the company since July 1, 2017. It fails to make any distinction between executive or non-executive directors.
The notice follows despite the Karnataka Bench of AAR ruling that came earlier this month, saying an executive director provides services to a company as an employee does to the employer, and the same can’t be treated as supply of services according to the GST Act. However, it said that a non-executive director, who doesn’t receive remuneration from the company as an employee and only gets fees for attending board meetings would be required to pay the GST on such fees through the reverse charge mechanism.
In April, the Rajasthan Bench of AAR had ruled that remuneration paid to directors of a company would be subject to the GST. The ruling was contradicted by the Karnataka AAR a month later.
Although AAR ruling is applicable only to applicants who seek clarity on interpretation of laws, experts said GST authorities are taking conginazance of such ruling while issuing notices in similar matters.
“Divergent views on taxation of director salary by two state advance ruling authorities were already enough of a nuisance for taxpayers. Adding to the woes of taxpayers, officers under other jurisdiction have already initiated issuing notices to taxpayers on the same issue,” Rajat Mohan, senior partner, AMRG & Associates, said.
He added that ruling by an AAR should not form the basis for issuing tax notices in other tax jurisdictions, but tax officials are indulging in it without ‘application of mind’, causing anguish to the ailing industry already suffering from the pandemic.
To deal with conflicting ruling by two state AARs, the GST Council in December 2018 had approved setting up of a centralised Appellate Authority for Advance Ruling. This was ratified by the Cabinet a month later.