Section 7(2)

Notwithstanding anything contained in sub-section (1),–

(a) activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by CG, a SG or any local authority in which they are engaged as public authorities, as may be notified by the Government,

shall be treated neither as a supply of goods nor a supply of services

Sch III states that following transactions shall be not be treated as supply of goods or services under gst.

Para 1 of Schedule III

Services by an employee to the employer in the course of or in relation to his employment

Only services that are provided by the employee to the employer in the course of employment are outside the realm of supply.

However, services provided outside the ambit of employment for a consideration would qualify as supply.

Services of casual worker is not supply

Services provided by casual worker to employer who gives wages on daily basis to the worker are services provided by the worker in the course of employment.

Casual workers employed by a construction contractor for execution of a building contract for him are services in the course of employment.

Similarly, casual workers employed by a security services agency for provision of security services to a client are also services in the course of employment.

Any amount paid by employer to employee for not joining a competing business is paid for providing the service of forbearance to act and cannot be considered for providing services in the course of employment.

Remuneration paid to partners is not supply. It is merely an appropriation of profit.

Question & Answer

Amounts received by an employee from the employer on premature termination of contract of employment are treatable as amounts paid in relation to services provided by the employee to the employer in the course of employment.

Question & Answer

Circular No. 140/10/2020 – GST, dated 10-6-2020

Whether the GST is leviable on Director‟s remuneration paid by companies to their directors.

Whether the remuneration paid by companies to their directors falls under the ambit of para 1 in Schedule III

Whether the same are liable to be taxed in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 (entry no.6).

2.

The issue of remuneration to directors has been examined under following two different categories:

leviability of GST on remuneration paid by companies to the independent directors defined in terms of section 149(6) of the Companies Act, 2013 or those directors who are not the employees of the said company; and

leviability of GST on remuneration paid by companies to the whole-time directors including managing director who are employees of the said company.

4.1

Remuneration to the independent directors or those directors who are not the employee is liable to GST under RCM

The primary issue to be decided is whether or not a “Director‟ is an employee of the company. In this regard, from the perusal of the relevant provisions of the Companies Act, 2013, it can be inferred that

the definition of a whole time-director u/s 2(94) of the Companies Act, 2013 is an inclusive definition, and thus he may be a person who is not an employee of the company.

the definition of “independent directors‟ u/s 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 makes it amply clear that such director should not have been an employee or proprietor or a partner of the said company, in any of the 3 FY immediately preceding the FY in which he is proposed to be appointed in the said company.

4.2

Therefore, in respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable.

In terms of entry at Sl. No. 6 of the Table annexed to 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.

4.3

Clarification

Remuneration to independent directors, or those directors, by whatever name called, who are not employees of the said company, is taxable in hands of the company, on reverse charge basis.

5.1

Remuneration to the directors, who are also an employee of the said company

Once, it has been ascertained whether a director, irrespective of name and designation, is an employee, it would be pertinent to examine whether all the activities performed by the director are in the course of employer-employee relation (i.e. a “contract of service”) or is there any element of “contract for service”. The issue has been deliberated by various courts and it has been held that a director who has also taken an employment in the company may be functioning in dual capacities, namely, one as a director of the company and the other on the basis of the contractual relationship of master and servant with the company, i.e. under a contract of service (employment) entered into with the company.

5.2

It is also pertinent to note that similar identification (to that in Para 5.1 above) and treatment of the Director‟s remuneration is also present in the Income Tax Act, 1961 wherein the salaries paid to directors are subject to TDS u/s 192 of the Income Tax Act. However, in cases where the remuneration is in the nature of professional fees and not salary, the same is liable for TDS u/s 194J of the IT Act.

5.3

Accordingly, it is clarified that the part of Director‟s remuneration which are declared as “Salaries‟ in the books of a company and subjected to TDS u/s 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.

5.4

Clarification

The part of employee Director’s remuneration which is declared separately other than “salaries‟ in the company‟s accounts and subjected to TDS u/s 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.

Director

contract of employment

GST Payable

Who is liable to pay

Managing Director

No

Yes

Company (under RCM)

Whole time director

Yes

No

NA

Executive Director

Yes

No

NA

Non-executive director

No

Yes

Company (under RCM)

Independent Directors / Nominee Director

No

Yes

Company (under RCM)

Para 2 of Schedule III

Services by any court or tribunal established under any law for the time being in force.

Explanation 1 Term "court" includes District Court, High Court and Supreme Court.

Ex

Legal/ Filing fee taken by courts from petitioners in lieu of its services is not considered as supply.

Circular No. 32/06/2018-CGST dt. 12-02-2018

2.

Is GST leviable on the fee/amount charged in the following situations/cases:

(1) A customer pays fees while registering complaints to CDRC office and its subordinate offices. These fees are credited into State Customer Welfare Fund’s bank account.

(2) CDRC office and its subordinate offices charge penalty in cash when it is required.

(3) When a person files an appeal to CDRC against order of District Forum, amount equal to 50% of total amount imposed by the District Forum or Rs 25000/-whichever is less, is required to be paid.

Services by any court or Tribunal established under any law for the time being in force is neither a supply of goods nor services. CDRC (National/ State/ District) may not be tribunals literally as they may not have been set up directly under Article 323B of the Constitution. However, they are clothed with the characteristics of a tribunal on account of the following:

(1) Statement of objects and reasons as mentioned in the Consumer Protection Bill state that one of its objects is to provide speedy and simple redressal to consumer disputes, for which a quasi-judicial machinery is sought to be set up at District, State and Central levels.

(2) The President of the District/ State/National DRC is a person who has been or is qualified to be a District Judge, High Court Judge and Supreme Court Judge respectively.

(3) These Commissions have been vested with the powers of a civil court under CPC for issuing summons, enforcing attendance of defendants/witnesses, reception of evidence, discovery/production of documents, examination of witnesses, etc.

(4) Every proceeding in these Commissions is deemed to be judicial proceedings as per sections 193/228 of IPC.

(5) The Commissions have been deemed to be a civil court under CrPC.

(6) Appeals against District Commissions lie to State Commission while appeals against the State Commissions lie to the National Commission. Appeals against National Commission lie to the Supreme Court.

Clarification

In view of the aforesaid, it is hereby clarified that fee paid by litigants in the CDRC are not leviable to GST. Any penalty imposed by or amount paid to these Commissions will also not attract GST.

Para 3(a) of Schedule III

functions performed by the MP, MLA, Members of Panchayats, Municipalities and other local authorities

Para 3(b) of Schedule III

Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

Ex

Duties performed by President, Vice President, Prime Minister, Chief Justice, Speaker of the Lok Sabha, Chief Election Commissioner, Comptroller and Auditor General of India, Chairman of Union Public Service Commission, Attorney General of India, in that capacity.

Ex

Judge of Supreme Court of India is a constitutional post, remuneration received by them shall not be subject to GST.

Para 3(c) of Schedule III

duties performed by any person as a Chairperson or a Member or a Director in a body established by the CG or SG or local authority and who is not deemed as an employee before the commencement of this clause.

Ex

CBDT is a body established by the Central Government. Chairman / Member / Director (who are not employees) of these body shall be out of GST.

Para 4 of Schedule III

Services of funeral, burial, crematorium or mortuary including transportation of the deceased

Para 5 of Schedule III

Sale of land and, subject to para 5(b) of Schedule II, sale of building.

If land or building is sold after certificate of completion, then it will be treated as non gst supply.

But if land or building is sold before certificate of completion i.e. before or under construction, then it will be treated supply of services under Para 5(b) of Sch II.

Para 6 of Schedule III

Actionable claims, other than lottery, betting and gambling.

Section 2(1)

“actionable claim” shall have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882

Supply of Actionable claims, other than lottery, betting and gambling is non gst supply.

Only lottery, betting and gambling are treated as supply. All other actionable claims are outside the ambit of definition of supply.

Example of Actionable claim

Right to recover insurance money, claim for arrears of rent, claims for future rents (if these can be assigned), unsecured loans, unsecured debentures, bills of exchange, promissory notes, bank guarantee,  Fixed Deposit Receipt, right to the benefit of a contract, etc.

[1][Para 7 of Schedule III

Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.]

The effect is that the supply of goods consigned directly from a place in the non-taxable territory to a place in the non-taxable territory without such goods touching the Indian shores shall not be treated as ‘supply’, thus not leviable to tax.

Ex

Mr X purchased goods from China and sold it to Georgein Canada without bringing the goods in India. This transaction is neither supply of goods nor supply of services.

Question & Answer

[2][Para 8(a) of Schedule III

Supply of goods from custom bonded warehouse to any person

before clearance for home consumption]

[3][Explanation 2.–For the purposes of paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962.]

Ex

Mr X imported some goods in India, but kept the goods in custom bonded warehouse without clearing it for home consumption. In the meantime, Mr X sold these goods to Mr Y while they were in warehouse. This transaction between Mr X and Mr Y is neither supply of goods nor supply of services.

[4][Para 8(b) of Schedule III

Supply of goods by the consignee to any other person,

by endorsement of documents of title to the goods,

after the goods have been dispatched from the port of origin located outside India

but before clearance for home consumption.

Ex

Mr X of India imported some goods from Japan. While the goods were in high seas, Mr X sold the goods to Mr Y in India by way of endorsement of documents of title of goods. This transaction between Mr X and Mr Y is neither supply of goods nor supply of services.

There is no bar on the same goods being sold more than once on high seas. The same consignment of goods in transit can be sold multiple times before such goods cross customs frontier and enter into the territory of India.

Question & Answer

Question & Answer