Whether notice pay recovery is leviable to service tax?

PJ/Case Law/2019-2020/3610

GE T & D India Limited v. Dy. Comm. of Central Excise, Large Tax Payer Unit, Chennai2020-VIL-39-MAD High Court-ST
Brief Facts: -The Petitioner had received certain amounts in lieu of notice period from its outgoing employees i.e. notice pay recovery. The department confirmed the demand of service tax on such notice pay recovery on the ground that the Petitioner had tolerated the act of immediate quitting of the employee from service and such an agreement / toleration would result in rendition of taxable service as per section 66(e) of the Finance Act, 1994 (Act) viz. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
Issue: -Whether notice pay recovery is leviable to service tax?
Appellant Contention: -The Petitioner filed a writ petition before the Hon’ble High Court and argued that no service tax was payable on such amount received.
Reasoning of the Judgement: -The Hon’ble Madras High Court after taking into account provisions of section 65B(44) and section 66(e) of the Act, found that no service tax is payable when an employee receives any amount from its employer by reason of premature termination of employment. The High court observed that the present transaction is contra to the clarification provided.
The employer has not facilitated / tolerated any act and has merely facilitated the exit of the employee upon imposition of a cost, for their sudden exit, and section 66(e) is not attracted;
A contract though is to be read as a whole, there are situations within a contract that constitute rendition of service such as breach of a stipulation of non-compete; Notice pay recovery does not give rise to rendition of service either by the employer or the employee, taxable value for the purpose of levy of tax and therefore, the service tax is not payable by the appellant.
Held: -Service tax is not payable on notice pay recovery. Plea of availability of alternate remedy of statutory appeal, as raised by the Department, was rejected since the matter involved interpretation of statutory provision.
Comment: -Services by an employee to employer in course of or in relation to employment would not treated as either supply of goods or as services. There is a school of thought among few professionals that notice period pay is recovered in course of employment and should not be treated as supply liable for GST. It is important to note here that the services are provided by employer to employee by way of tolerating the act. Therefore, this view may not hold good for the simple reason that the exemption is for services by employee to employer and not for services by employer to employee. The said judgment should also be equally applicable in the GST regime as the provisions remain the same. The Appellate Authority of Advance ruling for Advance Ruling under GST has upheld the levy of GST on such charges recovered from the employee in the case of M/sMaharashtra State Power Generation Company Ltd. 2018 (17) GSTL 451 (App. AAR GST).
Prepared By- CA Kartik Singhvi

Comments

PJ/Case Law/2019-2020/3610

Post a Comment

Query