QUESTION

A PVT LTD COMPANY PAY REMUNERATION TO ITS DIRECTOR. SHOULD THAT REMUNERATION ATTRACT RCM UNDER GST LAW. THE ASSESSEE IS APPLYING REFUND UNDER INVERTED DUTY STRUCTURE YEARLY BASIS. SHOULD HE TAKE THE REFUND OF THAT PARTICULAR RCM OF DIRECTOR REMUNERATION ALSO...?

ANSWER
Facts of the case: A Pvt. Ltd. Company pay remuneration to its director.

Law Applicable:
Schedule III of CGST Act
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1.Services by an employee to the employer in the course of or in relation to his employment.

Notification 13/2017-Central Tax Rate

SECTION 54 OF CGST ACT
(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:
Provided that no refund of unutilised input tax credit shall be allowed in cases other than''
(i) zero rated supplies made without payment of tax;
(ii) 'where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.

Rule 89
(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:-

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ' Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services.

Explanation:- For the purposes of this sub-rule, the expressions '

(a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and
(b)Adjusted Total turnover" and "relevant period" shall have the same meaning as assigned to them in sub-rule (4)

Interpretation:
If the service is provided by Director there are two possibilities:
First is that the service is provided under the terms of employment. The same will not subject to GST being covered under Employer -Employee relationship as per Schedule III of CGST Act.
Please be noted that it will cover only those services which are as per the terms of employment & taken into calculation for Income Tax return under the head salary.
Sometimes the Director may provide service under the capacity of Business & Profession like Design Fees, sitting fees etc. In this category the tax is to be paid under Reverse charge as per above mentioned Notification.
If the service is covered under Reverse charge, tax is to be paid irrespective of the fact that the turnover of the director is less than 20 Lakhs.

So far as refund is concerned, it is claimed in two cases only:
1. Zero rated supplies made without payment of tax;
2. Inverted Duty Structure

In case of refund on account of Inverted duty structure as per Rule 89 it is available only on inputs and not on Input services. Therefore Refund cannot be claimed of tax paid under RCM on Directors Remuneration.

Conclusion:
If the Director is providing services under the terms of employment, the same will not subject to GST being covered under Employer -Employee relationship. Director may provide service under the capacity of Business & Profession. In this category the tax is to be paid under Reverse charge but tax paid on director remuneration cannot be claimed as refund