MSME REGISTRATION, new and existing, through Udyam Registration Portal, w.e.f. 01.07.2020, as per notification dated 26.06.2020

The Ministry of micro, small and medium enterprises vide its notification dated 26^th June, 2020 has notified certain criteria for classifying the enterprise as micro, small and medium enterprises and specified the form and procedure for filing the memorandum, for both new and existing, with effect from 1^st July, 2020.

As far as classification is concerned, the enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees, will be considered as Micro Enterprise. Further, the enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees, will be considered as Small Enterprise. Moreover, the enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees, will be considered as Medium Enterprise.

The calculation of investment in plant and machinery or equipment will be based upon the Income Tax Return (ITR) of the previous year filed under the Income Tax Act, 1961. It is also clarified in the aforesaid notification that the plant and machinery will include all tangible assets other than land and building & furniture and fittings.

All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively considered as one enterprise for the computation of turnover and investment for deciding the category as micro, small or medium enterprise.

Registration will be done through Udyam Registration Portal. All existing enterprises registered under EM-Part-II or UAM shall register again on the Udyam Registration Portal on or after 1^st July, 2020. However, the existing enterprises registered prior to 30^th June, 2020 shall continue to be valid only for a period upto 31^st day of March, 2021.

Further, one enterprise shall be allowed to have only one Udyam Registration, wherein it may include any number of activities in the said registration.

LEGAL DISCLAIMER:

The information contained in this article/blog is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act on the basis of any content included in this article/blog without going through the actual notification and seeking legal or other professional advice in respect of same. The contents of this article/blog contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions based on any content of this article/blog. The reading of this article/blog does not create an attorney-client relationship between you and me. Any information sent to us via any mode is not secure and will not be treated as confidential.

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HR Department of Company may consider to issue necessary Temporary Advisory/Directions for its Employees while resuming their operations Post Covid-19

As the Ministry of Home Affairs, in pursuance of its order No. 40-3/2020-DM-I (A) dated 1^st May, 2020, has issued new guidelines, effective from 04.05.2020, allowing, subject to the conditions, various activities. In order to be safe and protect others and to contain the spread of Corona Virus Disease (hereinafter referred as “Covid-19”) and to follow the National Directives for Covid-19 management issued by the Ministry of Home Affairs, HR Department of the Company may consider to issue the relevant temporary rules, guidelines, circulars and advisories for their employees/personnel at their office premises. The HR Department may consider the following, in addition to other guidelines/directives issued by the Government or other authorities, guidelines for their employees/personnel and head of the department in respect of same:

1.                 Employees without Identity Card and Face Mask are not allowed to enter into the premises,

2.                 Every person entering into the premises is required to undergo the Thermal Scanning/Temperature Check on each entry,

3.                 It is mandatory to constantly wear face mask inside the office premises,

4.                 No one is allowed to move out from the office premises during working hours without the written permission of concerned reporting officer,

5.                 The Social Distancing of not less than 1 meter must be maintained inside the office premises,

6.                 It is advised to carry and use your own alcohol based sanitizer or else wash your hand regularly at least at the time of entering into the office premises. The proper arrangement for washing of hand is made at specified portion of the building where the office is situated,

7.                 It is mandatory for everyone to use AAROGYA SETU APP and follow the instructions therein. The security is being instructed to check the mobile if they suspect anything,

8.                 All Head of the Department are required to ensure that the departmental roster is made and shared with HR Department,

9.                 The working hours are being extended till 6pm on all days till further notice,

10.            The Head of the Department may be also be allowed to provide work from home roster,

11.            The biometric attendance punching machine shall be disabled temporarily for finger scanning. Alternate facility like Email Attendance, Punching through Card or Attendance Register may be considered,

12.            It is better to avoid providing facility of Tea as precautionary measures to contain the spread of Covid-19,

13.            Encourage to bring lunch from Home and to do lunch alone/separately,

14.            Make the proper arrangements for awareness of directives issued by the Government and issue the proper instructions to direct the Employees to follow the directives in letter and spirit. 

15.            Advise not to gather more than four person at a time even for official work,

16.            Advise to do the meeting through video conference/app sitting at work stations instead of gathering in meeting hall/room,

17.            Advise to avoid Physical/Face to Face Meetings. In case, the face to face meeting is necessary, follow the social distancing norms,

18.            No smoking movement are allowed inside or outside the premises,

19.            Consumption of Liquor, Paan, Gutka, Tobacco, etc. is not allowed inside or outside the office premises,

20.            Provide the list of Hospitals, to employees, in nearby areas authorized for Covid-19 treatment,

21.            Make proper arrangement to ensure that the Employees Showing any of symptoms should be sent for check up and related facilities, and

22.            Good Hygiene Practice may be encouraged.

Provisions may be made so that any violations of above guidelines shall be considered as misconduct of grave nature so that appropriate disciplinary action may be initiated in respect of same.

LEGAL DISCLAIMER:

The information contained in this article/blog is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act on the basis of any content included in this article/blog without seeking legal or other professional advice. The contents of this article/blog contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions based on any content of this article/blog. The reading of this article/blog does not create an attorney-client relationship between you and me. Any information sent to us via any mode is not secure and will not be treated as confidential.

-THANK YOU-

Full Salaries to Workers during Lock-Down Period in view of MHA Order and Petitions pending before Hon’ble Supreme Court: Balance between Industries and Workers is need of the Hour

China, on 31.12.2019, reported pneumonia of unknown cause, detected in the city of Wuhan, to Word Health Organization (“WHO” for brevity), wherein WHO on 22.01.2020 issued statement regarding human to human transmission of Novel Coronavirus in Wuhan. The WHO, on 30.01.2020, declared this outbreak as Public Health Emergency of International Concern (PHEIC), and it has declared the Coronavirus Disease as COVID-19 on 11.02.2020, subsequently, WHO declared Covid-19 as Pandemic. The Corona Virus Disease is hereinafter referred as “Covid-2019”.

The Ministry of Home Affairs (“MHA” for brevity) on 14.03.2020 notified Covid-2019 as notified disaster. Thereafter, the Ministry of Health and Family Welfare issued advisory on social distancing measures. The Ministry of Labour and Employment, on 20.03.2020, issued a letter to the authorities to issue the advisory to employers/owners of establishment not to terminate/reduce the wages of employees. The country observed “Janta Curfew” on 22.03.2020.

That the Department of Expenditure, Ministry of Finance, on 23.03.2020, ordered that if any contractual, casual and outsourced staff of Ministries/Department and other organizations of Government of India is required to stay at home due to lock down period till 30.04.2020, it shall be treated as “on duty” and necessary wages shall be paid to be paid to any such employees. The Ministry of Labour and Employment, on 23.03.2020, issued the direction to issue an advisory to all public/private employer/owner of establishment to extend their coordination by not terminating employees, particularly casual or contractual, from their jobs and reduce their wages.

The National Management Disaster Authority informed, vide its order dated 24.03.2020, that it has satisfied that the country is threatened with the spread of Covid-2019 and directed the Government to issue guidelines in terms of section 10(2)(l) of the Disaster Management Act, 2005 (“DMA” for brevity). Accordingly, Home Secretary, MHA, acting as a Chairperson of National Executive Committee issued the order of lock down from 25.03.2020 to 14.04.2020 and issued guidelines in respect of same, which was extended till 03.05.2020 with some relaxations.

Interestingly, the MHA vide its order dated 29.03.2020 (“subject order” for brevity) directed the state and union territory governments to take, inter alia, following additional measures:

i.               State/Union Territory Governments shall ensure adequate arrangements of temporary shelters, and provision of food etc. for the poor and needy people, including migrant labourers, stranded due to lockdown measures in their respective areas,

ii.             The migrant people, who have moved out to reach their home states/home towns, must be kept in the nearest shelter by the respective state/union territory government quarantine facilities after proper screening for a minimum period of 14 days as per standard health protocol.

iii.           All the employers, be it in the industry or in the shops and commercial establishments, shall make payment of wages of their workers, at their work places, on the due date, without any deduction, for the period their establishments are under closure during the lockdown.

iv.           Where ever the workers, including the migrants, are living in rented accommodation, the landlords of those properties shall not demand payment of rent for a period of one month.

v.             If any landlord is forcing labourers and students to vacate their premises, they will be liable for action under the Act.

It was also mentioned in the subject order that necessary action will be taken in respect of violation of any of condition of subject order. The Ministry of Labour and Employment, on 30.03.2020, issued an advisory to all the Regional Labour Commissioner that all employees/workers may be deemed to be on duty in case place of employment is made non-operational due to lock-down. All public and private enterprises were advised not to terminate their employees from jobs, including the casual and employee of contractual, and not to deduct their wages.

The Employers are aggrieved by the subject order on the following grounds:

i)                    Due to lock-down, Employers have less or zero revenue, and incurring, due to fixed costs, huge losses,

ii)                  Employers are not in a position, financially, to pay the salary/wages,

iii)                If the employers are forced to make the 100% salary/wages during the period of lock-down, it may lead to closure of many MSMEs, which will ultimately lead to permanent unemployment,

iv)                Government cannot force the employer to pay for NO WORK,

v)                  Welfare of citizen is the duty of state, and government should take appropriate action for these workers during the period of lock-down. The huge amount, contributed by the employers and employees in relation to their employment, in the form of EPF and ESI and their respective interest is lying with the government, and the government should utilize the same, at this crisis situation, for the welfare of employees/workers and industries,

vi)                Government has not given any general waiver/relaxation as far as liability of employers are concerned except giving some deferment of payment,

vii)              There is a provision under the Industrial Disputes Act, 1947 to deal with employees under the situation of natural calamity, and therefore, any action by invoking DMA is unwarranted, 

viii)            The Government has no power to issue the subject order under the DMA,

ix)                The subject order is violation of Article, 14, 19, 21, 265 and 300A of the Constitution of India,

x)                  The Ministry of Corporate Affairs has considered the payment of salary/wages to employees/workers as moral duty of the employer, and therefore, the employers may not be forced for their moral duty,

xi)                There cannot be identical order for all kinds of employees,

On the other hand, the Labour Unions, representing employees/workers, are justifying the subject order on the following grounds:

i)                    The subject order is necessary for the Protection of the weaker section of the society,

ii)                  The subject order is necessary for sustenance and livelihood of weaker section of the society,

iii)                Most of the workers cannot survive in such lock down without wages,

iv)                The contract of service is subsist, even, during the lock down, and accordingly, the employer is duty bound to make the payment of wages/salary,

v)                  Cessation of Work is not due to any fault on the part of the workman, and accordingly, the same is recognized as continuous service in terms of Section 25B of the Industrial Disputes Act, 1947

vi)                The workers have not denied to work, and they are ready to work,

vii)              Reduction of wages requires due procedure in term of Section 9A of the Industrial Disputes Act, 1947

viii)            The need, expenses and requirements of employees/workers have increased due to Covid-2019 as the prices of various essential goods have been increased, additional goods like sanitizer, mask and other equipments are required for personal protection, and therefore, the workers are in want of, even, increased wages,

ix)                There is no change in basic fixed expenses of employees/workman, like school fee, rent, loan/borrowing repayment, etc. wherein most of them, having no savings, are depended on their monthly salary/wages only.

Whether the government has power under the DMA to pass any subject order directing the employer to pay full wages or constitutional validity of such provisions of DMA is Question of Law. Technically, the answer may be NO, however, as the subject matter is related to the Protection, sustenance and livelihood of the weaker section of the society, the court may take up the Mischief Rule of Interpretation to consider the order of government as measures taken by government in response to threatening situation of Covid-19. The said order of the government may consider as reason for successful/effective lock-down to contain the spread of lock down encouraging employees to follow the lock down on the assurance that government will protect their livelihood. The recent judgment of Hon’ble Supreme Court on free Covid-19 testing, benefit to poor was retained even after modification, is the example of same.

As far as Articles 14, 19 and 21 of the Constitution of India (“COI” for brevity) are concerned; both the parties may claim their respective rights under these articles for their own benefits. Article 300A of COI may not be applicable in this case as the direction is only in respect of employees and not others, and accordingly, the question of deprivation of property does not arise at all. Similarly, Article 265 of COI may not be relevant here, as it may not be termed as imposition of tax by government as the order is limited to the payment of wages at existing rates to existing employees by the employers. Again, the Court may consider the Article 14, 19 and 21of COI for the Protection, sustenance and livelihood of the weaker section of the society.

Ministry of Corporate Affairs (“MCA” for brevity), on 10.04.2020, issued FAQs in the context of inclusion of contribution made in “PM Cares Fund” qualifying as Corporate Social Responsibility (“CSR” for brevity) expenditure, wherein MCA had clarified that payment of wages to employees during the period of lock down cannot be considered as CSR expenditure on the ground that payment of wages during the normal condition is statutory responsibility of company, and during the lock down is moral duty of the company. Further, MCA has clarified, in another question, in same FAQs, related to casual/daily wage workers, that it is moral/humanitarian/contractual obligations of the company irrespective of their obligation to make CSR expenditure in accordance to section 135 of the Companies Act, 2013 and rules made there-under. Needless to say, these FAQs were issued by MCA for specific purpose, after the impugned order of MHA, and may not be helpful/binding/relevant/applicable in contending the issue of payment of salary/wages to employees/workman.

As far as actions taken by government for the reduction of salary of Members of Parliament, and the order of government not disbursing the increased amount of Dearness Allowances till July, 2021 cannot be compared with no payment or reduced payment to employees/workers. As per available information, government has not taken any action for reduction of wages of any of its Class-IV employees. I don’t think, the Hon’ble Court would consider the same as ground for supporting the reduction of salary/wages to employees/workers.

The provisions for lay off, due to natural calamity, are available in the Industrial Disputes Act, 1947 (“IDA” for brevity), and accordingly, the employers should have the right to take action under Chapter VA or VB of IDA in case of natural calamity. However, as the subject order is passed under the DMA, wherein section 72 of DMA provides that the provisions of DMA shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than DMA. Therefore, provisions of IDA may not be relevant in the present situation and the provisions of DMA will prevail over the IDA. Even otherwise, the provisions of Chapter VA or VB of ID Act may not be applicable in many establishments. Further, court may consider that such provisions of IDA may not be effective in the present situation for the protection of weaker section of the society. This is pertinent to mention here that proper notice in terms of section 9A of IDA is required to be issued before making any change in the condition of service, including changes in wages, of workman. Accordingly, it may not be lawful for the employers to reduce the salary/wages, without complying the provisions of section 9A of IDA, even in the absence of subject order.

No doubt, the subject order may be considered as an order issued in haste and without considering its constitutional validity and financial ability of establishments to pay the full wages even during the lock-down. It may be because of the situation, wherein the primary duty of the government was to take all necessary measures to contain and curb the spread of Covid-2019 and to assure its citizen about the protection of their livelihood, which was necessary for effective lock-down.

Due to above grievances, the petitions are filed before the Hon’ble Supreme Court challenging the subject order on behalf of industries. Further, counter petition or intervening applications are also filed for the effective enforcement of subject order on behalf of workers. The Hon’ble Apex Court has issued notice in the matter on 27.04.2020 and granted Union of India two weeks time to file its response, however, no interim order is passed in the matter till date. Therefore, the subject order, as on date, is fully effective and have the force of law.

The Government should come up with some fresh guidelines in respect of same, so that it will be able to balance the affected industries and workers both. Needless to say, favorable atmosphere for industries is necessary for long term protection of weaker section of the society and overall development of economy. The Government should allow the companies to have their own arrangement and agreement with their employees for lock down period subject to the payment of minimum amount as salary/wages/consideration amount along with security of employment. Government should not interfere with the management decision about the executive level employees. Government should also consider suspending the provisions of minimum wages, EPF and ESI for some time with proper plan for the long term protection of employment of workers. However, any of these guidelines should be applicable exclusively to affected industries, and proper mechanism should be framed to ensure that no unaffected industry is taking undue advantage of these guidelines. The term affected industry should be clearly defined in the guidelines to include only those industries whose revenue during the lock down period is zero or minimal.

This is the need of the hour to protect the affected industries, especially affected MSMEs, at all costs. There cannot be a dispute that workers and employees are part and parcel of industries, and industry cannot exist without them. Therefore, a waiver of portion of salary/wages may consider better option as compare to the risk of Permanent Unemployment. However, the protection of sustenance and livelihood of workers and employees cannot be ignored, and therefore, the limited reasonable government interference is necessary for same.

-THANKS-

SUSTAINABILITY OF INDIAN ECONOMY POST LOCK DOWN (CORONA PANDEMIC)- Positive but Realistic GS view

INTRODUCTION:

The novel corona virus disease (hereinafter referred as “Covid-19”), which has been declared as pandemic by Word Health Organisation, forced the government to declare Lock Down all over the country and accordingly, this has completely stopped the business and professional activities causing extensive slowdown of Indian Economy.

BACKGROUND

India is fifth largest economy of the world. The GDP of India for the year 2018-19 was $ 2.719 trillion with the growth rate of 6.8%. The GDP growth rate for the financial year 2020-21, as per economic survey, was expected to be in the range of 6.00% to 6.50%, wherein the government has estimated nominal growth of GDP for 2020-21 at 10%. Yong and Growing Population is its strength.

If we look at Pre-Covid19 situation of Indian economy, the problem of NBFCs that started with ILFS was creating the fear for entire economy. Bank was facing problems due to increasing bad loans, and it affected its lending ability. There was significant reduction of private investment and new business by companies. Though RBI had taken various measures, but few bankers have given the benefits to consumers. The auto sector was going through short term recession, reason of BS-IV and condition of third party insurance for five years cannot be ruled out, as there was a less demand for vehicles, and accordingly, the companies were doing laid off and suspended production for some time. Further, this is also a matter of fact and record that last Year, 2019, was a difficult year for the global economy with world output growth growing at its slowest pace of 2.9% since the global financial crisis in 2009. A weak environment for global manufacturing, trade, and demand adversely impacted the Indian economy. Covid-19 has already impacted the global economy for this year too, and its affect, in the present globalization, to the Indian economy is obvious. But, being an optimistic person, I can see lot of opportunity for the growth of Indian Economy post Covid-19 lock down. Past performance is not necessarily a good predictor of future performance.

MEASURES:

There is an urgent need of specific clarification regarding the clear future road map to revive the economy affected due to Covid-19 lock down. We have seen in the Past that that financial markets, private investment, inflation and overall economic activity were negatively impacted by heightened uncertainty.

Work is required to be done, with the team of experts from different industries, by taking, sector wise, both short term measures and long term measures, wherein short term measures will allow the economy to resume its operations effectively, and long term measures will ensure growth in economy.

Agriculture sector has the potential to support the economy even during this Covid-19 period as it may not be substantially affected by this lock down. There is a need to take the specific measures to save the present crop and provide the required assistance for crop rotation. Proper mechanisms for Fair Price to farmers, investment on infrastructure, availability of internet facility for use of information technology and adequate warehousing arrangement are required to be made. These measures may also assist the commitment of government towards doubling farmers’ incomes by 2022, and may help in generating employment.

Incident, during Covid-19 Lock Down, of people migrating back to their villages shows that separation of people’s natural habitat may produce income but not happiness. We can learn from the “Work from Home” concept adopted during Covid-19 Lock Down, and can make proper infrastructure for “Work from Village”. Encouragement to Non-farming activities will not only reduce the problem of urban migration but will also generate employment. This will also increase the consumption level of rural India and accordingly open the ways for fresh investment.

Corporate Bonds worth approximately Rs. 92,000/- Crore and commercial papers worth around Rs. 78,000/- Crore are coming up for repayments towards the end of May. Attention of India Inc. is required for proper management of same as it will have impact on the confidence of investor on Indian economy and strengthening trust in the market.

Effective Use of technology may reduce the government expenses thereby support the government to manage Fiscal Deficit. Reducing the public holidays for remaining part of the year will enhance working hours. Relaxations on laws and tax benefit may support the sectors like hotels and restaurant, tours and travels, transport, construction and automobiles, and it may also reduce lay off thereby help the government to effectively deal with unemployment.

Economic activities are affected by the pendency in the legal system. Immediate attentions are required for appointment of judges and making the proper infrastructure and atmosphere for virtual courts. Special Courts are required to be notified immediately to resolve, on time-bound basis, the disputes/matters arise due to Covid-19.

The Word’s Dependency on India for “hydroxychloroquine” during Covid-19 shows India’s potential on Health Sector. Health sector has the potential to support the Indian economy for its sustainability and it can also play vital role for the growth of Indian Economy. It can help in generating foreign exchange and employment. Proper Investment and more focus on innovation capabilities and knowledge revolution can be value added to the Indian Economy, and it can also play very important role towards the steps of making India a $5 trillion economy by 2025.

CONCLUSION:

India is Rising Economic Power, and there will be no problem for sustainability of Indian Economy post Covid-19 Lock Down on taking the prompt adequate action in proper manner.

-THANK YOU-

Sources:

1.      The Ministry of Statistics and Programme Implementation

2.      Economic Survey

3.      Union Budget of India

4.      World Bank

5.      Live Mint

6.      Financial express

https://www.linkedin.com/pulse/research-paper-sustainability-indian-economy-post-lock-sharma

GST on Director’s Remuneration. Employee or Director or Both. Attempted to Frame 8 Issues. Resolve It.

Recently, the Ld. Rajasthan Authority for Advance Ruling in the matter of Clay Craft India Private Limited and Ld. Karnataka Authority for Advance Ruling in the matter of Alcon Consulting Engineers (India) Private Limited have given the ruling that Director is not the employee of the Company, and accordingly, the GST is payable in respect of the payment made by the company, under any head, to its director. Authority for Advance Ruling has not considered that the director may also act as an employee director of the company. It has also not considered that the director, in addition to a director, may also act as employee and may also provide the services to the company as employee to the company in the course of or in relation to his employment. Authority has also held that the services provided by the director to the company are falling under section 9 read with Notification 13/2017 – CT (R) dated 28-06-2017 vide entry No. 6, and accordingly, the GST, in case of services provided by the Director of the company to such company, shall be payable on reverse charge mechanism basis.

It is important to note here that as per section 103 of the GST Act, the advance ruling is binding only on the applicant who has sought the advance ruling and the concerned officer in respect of the applicant who sought such advance ruling. Accordingly, any advance ruling given by the authority for advance ruling is not binding on THIRD PARTY. Needless to say, though these rulings are not binding on third party, GST authority may, guided by the aforesaid rulings, start issuing notices against the Companies for not paying GST amount against the payment made to the Director.

Accordingly, the aforesaid rulings have raised various unanswered queries and confusion among the business persons and professionals, and the sense of uncertainty cannot be ignored. We have seen in the Past that that financial markets, private investment and overall economic activity were negatively impacted by heightened uncertainty. Accordingly, I have tried to frame following issues in respect of same:

1.      Whether GST is payable in respect of the consideration received against all the services provided by the director to the company?

2.      Whether the director is an employee of the company?

3.      If the director is not the employee of the company, whether the designation of director will debar him (director) to have a separate relationship with the company as its employee under a contract of service?

4.      Whether GST is payable in respect of the consideration received against any of services provided by the director to the company?

5.      Whether the threshold limit as prescribed under section 22 of GST Act is applicable for the payment of GST against the remuneration paid to the director in respect of the services provided by the director to the company?

6.      Whether a company having a turnover below the threshold limit and making the payment of remuneration to its director is required to be registered under the GST Act?

7.      Whether a director receiving remuneration is required to be registered under the GST Act?

8.      If the GST is payable in respect of the amount received against the services provided by the director to the company, whether the TDS, against the amount paid to director, is required to be deducted under section 192 of the Income Tax Act, 1961 or 194J (1)(ba) of the Income Tax Act, 1961?

The Central Goods and Services Tax Act, 2017 is an act to make a provision for levy and collection of tax on intra-state supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto. Similarly, each states have their own respective Goods and Services Tax Act to make a provision for levy and collection of tax on intra-state supply of goods or services or both by the concerned state government and for matters connected therewith or incidental thereto. As the provisions of all these acts are almost similar, these acts, for the sake of reference, are hereinafter jointly referred as GST Act.

ISSUE NO. 1:

Section 7 read with Schedule-III of the GST Act provides that any services provided by an employee to the employer in the course of or in relation to his employment shall not be treated as supply of services under the GST Act. Accordingly, the Goods and Services Tax (hereinafter referred as “GST”) is exempted under the GST Act in respect of the services provided by an employee to the employer in the course of or in relation to his employment.

Therefore, if the director is acting as an employee of the company for the company under the valid contract/terms/appointment document and providing its services to the company in terms of its appointment document, the services provided by the director to the company should be treated as services provided by the employee to employer under his employment. Therefore, any payment made by the company to director for providing such services in terms of his employment should be exempted, in terms of section 7 read with Schedule III of GST Act, from GST liability.

Further, section 9 read with Notification 13/2017 – CT (R) dated 28-06-2017 vide entry No. 6 provides that the GST in respect of the services provided by the Director of the company or body corporate to such company or body corporate, shall be payable on reverse charge basis.

As the words “any” or “all” are not used in aforesaid entry No. 6 of Notification 13/2017 – CT (R) dated 28-06-2017, it is crystal clear that every services provided by director to the company cannot be said to be liable for GST under GST Act. Therefore, the GST Act itself has given a scope to consider the services provided by the director to the company in more than one part. Accordingly, it may be divided into two parts, one, where the services provided by the director to the company as employee to employer in terms of his employment with company, and secondly, the other services, in terms of the Companies Act, 2013, provided by the person in the capacity of director to the company, and thereby he may receive the fee for same as professional fee, consultant fee, sitting fee, etc. This is pertinent to mention here that Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides that a company may pay a sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be decided by the Board of directors thereof which shall not exceed one lakh rupees per meeting of the Board or committee thereof, and this may be considered as payment to the director by the company for providing the services to the company in the capacity of director. Accordingly, we can’t rely on entry No. 6 of Notification 13/2017 – CT (R) dated 28-06-2017 to hold that every services provided by the director are liable for GST payment. Therefore, GST should NOT be applicable in respect of all kind of services provided by the director to the company. The Issue No. 1 is answered accordingly.

ISSUE NO. 2:

The GST Act has neither defined the term “Employee” nor defined the term “Director”. However, there may not be any dispute in referring the provisions of the Companies Act, 2013 and rules made there under to get the definition of Director, and similarly, Labour Laws to get the definition of Employee.

As per Section 2(34) of the Companies Act, 2013, a director means a director appointed to the Board of a Company, and as per section 2(10) of the Companies Act, 2013, collective body of the directors of the Company is called as “Board of Directors” or Body” in relation to the Company. As per section 165 of the Companies Act, 2013, a person can hold the directorship upto 20 companies. The specific duties of directors are enumerated in section 166 of the Companies Act, 2013. The Companies Act, 2013 recognizes various kinds of director, like executive, non-executive, additional, independent, nominee, etc. Section 179 of the Companies Act, 2013 provides the provisions related to the Powers of Board and section 180 of the Companies Act, 2013 provides the provisions related to the restrictions on powers of Board. However, no such provisions related to individual director are there in the Companies Act. Needless to say, in case of company, the ultimate direction and control of the affairs resided with the board of directors, if not with the shareholders. Accordingly, a director cannot be deemed as a person having ultimate direction and control of the affairs of the company.

Further, as per section 2(1)(k) of the Companies (Specification of Definition Details) Rules, 2014, Executive Director means a whole time director as defined under clause (94) of section 2 of Companies Act, 2013. Further, as per section 2(94) of the Companies Act, 2013, whole-time director includes as director in the whole-time employment of the company.

Further, Section 17(2)(iii)(a) of Income Tax Act, 1961 provides that perquisites includes the value of any benefit or amenity granted or provided free of cost or at concessional rate by a company to an employee who is a director thereof.

Further, Explanation (a)(i) of sub section (1) of section 188 of the Companies Act, 2013 provides that where such office or place is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise. 

Section 2(f) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 provides that “employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment and who gets his wages directly or indirectly from the employer. Similarly, as per Section 2 (9) of the Employees’ State Insurance Act, 1948, “employee” means any person employed for wages in or in connection with the work of a factory or establishment, subject to the condition, to which the Act applies. Further, as per Cambridge dictionary, the word “employee” means “someone who is paid to work for someone else”.

In view of above, the director can also be in employment of the company, director can also work as employee of the company, and the director can also get salary from the company. There is no restriction to hold that the director is also an employee of the company. Therefore, issue No. 2 is answered accordingly. Therefore, GST should not be applicable in case of those directors, who are receiving the payment from the company as salary for providing their services to the company as employee under the terms of their appointment in relation to their employment. In that case TDS should be deducted by the company under section 192 of the Income Tax Act, 1962. However, in view of aforesaid recent rulings of AAR, even if those rulings are not binding on third parties, GST authority may issue notice against the company, guided by the aforesaid rulings, for not paying the GST on said payment. Therefore, it is advisable to file an application before the concerned Ld. Authority for Advance Ruling to get, company wise, specific clarifications in respect of same to avoid future, unnecessary, litigation.

ISSUE NO. 3:

Even assuming, though denying, that the director is not an employee of the company, whether the designation of director will debar him (director) to have a separate relationship with the company as its employee under a contract of service?

The Hon’ble Supreme Court in the matter of Ram Pershad vs Commissioner Of Income-Tax, New ... on 24 August, 1972 has held that “the Managing Director may have a dual capacity. He may both be a Director as well as employee. It is therefore evident that in the capacity of a managing- director he may be regarded as having not only the capacity as persona of a director but also has the persona of an employee or an agent depending upon the nature of his work and the terms of his employment”.

The Hon’ble Supreme Court of India in the matter of M/S Comed Chemicals Ltd Vs. C.N. Ramchand on 6 November, 2008 has held that “from settled legal position as also from the functions to be performed by the respondent, I hold that the respondent was working in dual or double capacity, i.e. (i) as an employee, and (ii) as a Director”.

In view of above, it is not the position/designation but the terms and condition of his employment and nature of his work which should be the criteria to decide whether the concerned person is in employment of the company. Further, on person at a same time can appointed as director as well as employee of the company.

Further, section 188(1)(f) of the Companies Act, 2013 provides that the company, subject to the condition as mentioned therein, can enter into any contract or arrangement with a related party with respect to such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company. This is apposite to mention here that section 2(76) of the Companies Act, 2013 provides that related party means a director or his relative. Further, Explanation (a)(i) of sub section (1) of section 188 of the Companies Act, 2013 provides that where such office or place is held by a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise. Therefore, the Companies Act, 2013 itself has recognized a director as also an employee of the company, and accordingly, a director can be appointed as employee of the company by the company, and the company may pay salary for same. In that case TDS should be deducted by the company under section 192 of the Income Tax Act, 1961.

Further, in that case, the company is required to pass the Board Resolution or Resolution, as the case may be, in accordance to section 188 of the Companies Act, 2013 read with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014. The registers of contracts or arrangements in which directors are interested are required to be maintained under section 189 of the Companies Act, 2013 read with Rule 16 of the Companies (Meetings of Board and its Powers) Rules, 2014. The director is required to make the disclosure of interest in terms of section 184 of the Companies Act, 2013. The committee, if applicable, is required to be formed in terms of section 178 of the Companies Act, 2013. Further, it should be recorded in the Board Report in terms of section 134(3)(e), if applicable, and 134(3)(h) of the Companies Act, 2013.

Issue No. 3 is answered accordingly.

ISSUE NO. 4:

Further, section 9 read with Notification 13/2017 – CT (R) dated 28-06-2017 vide entry No. 6 provides that the GST in respect of the services provided by the Director of the company or body corporate to such company or body corporate, shall be payable on reverse charge basis. Accordingly, the services, other than the services provided by the director as employee of the company, provided by the director to the company are liable for GST payment on the amount paid by the company to such director. Therefore, the GST is applicable in respect of all the payment received by the director, except the payment received by him as employee of the company in terms of his employment, from the company. The company, in that case, should deduct the TDS under section 194J (1) (ba) of the Income Tax Act, 1961. Therefore, the issue no. 4 is answered accordingly.

ISSUE NO. 5:

Further, Section 22 of the GST Act provides that every supplier is liable to be registered under the GST Act if his aggregate turnover in a financial year, subject to the condition, exceeds twenty lakh rupees. However, section 24 (iii) of the GST Act provides that notwithstanding anything contained in section 22 of the GST Act, any person who is required to pay tax under reverse charge is required to be registered under the GST Act. Accordingly, threshold limit is not applicable in case of transactions, wherein reverse charge mechanism is applicable for the payment of GST.

Therefore, in terms of Section 9 of the GST Act read with entry no. 6 of Notification 13/2017 – CT (R) dated 28-06-2017 and 24(iii) of the GST Act, the threshold limit as prescribed under section 22 is NOT applicable for the payment of GST against the remuneration paid to the director in respect of the services provided by the director to the company. Therefore, the issue no. 5 is answered accordingly.

ISSUE NO. 6:

In terms of Section 9 of the GST Act read with entry no. 6 of Notification 13/2017 – CT (R) dated 28-06-2017 and Section 24(iii) of the GST Act, the threshold limit as prescribed under section 22 is NOT applicable for the payment of GST against the remuneration paid to the director in respect of the services provided by the director to the company. Accordingly, the company having a turnover below the threshold limit and making the payment of remuneration to its director, except for the services provided by the director to the company as employee of company in relation to his employment, is required to be registered under the GST Act. Therefore, the issue no. 6 is answered accordingly.

ISSUE NO. 7:

That in terms of section 9 read with entry no. 6 of Notification 13/2017 – CT (R) dated 28-06-2017, the GST is payable under reverse charge mechanism in respect of the services provided by the Director to the Company. As the GST is payable under the reverse charge mechanism, it will be the responsibility and liability of the company to pay GST in respect of same, and therefore, the Director is NOT required to be registered under the GST Act for the same. Therefore, the issue no. 7 is answered accordingly.

ISSUE NO. 8:

The TDS in respect of the consideration amount paid for the services, except the services provided by the director as employee of the company in relation to his employment, provided by director to the company should be deducted under section 194J (1)(ba) of the Income Tax Act, 1961. However, the TDS in respect consideration paid for the services provided by the director to the company as employee of the company in relation to his employment should be deducted under section 192 of the Income Tax Act, 1961.

In view of above, the stands taken by the Ld. Authorities in the aforesaid rulings may require review in the matter. Accordingly, the GST Authority should come up with clarification in respect of same so that the aforesaid issues will be resolved permanently.  

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