2020 (11) TMI 1083 - AAR - GST

Levy of GST - amount recovered/forfeited from employees who are leaving the services during probation period - HELD THAT - As the recovery of salary in the instant case does not fall within the ambit of supply i.e. sale, transfer, etc. set out under sub-Section (1) of Section 7, and it being excluded activities or transaction of services by an employee to the employer in the course of or in relation to his employment as stipulated vide clause 1 of Schedule III supra, the conditions of Section 7 of CGST Act, 2017 is not satisfied and accordingly the transaction in question cannot be termed as a supply within the meaning of Section 7 and therefore, cannot be subjected to levy of GST. The employee opting to resign by paying amount equivalent to one month's salary in lieu of notice has acted in accordance with the contract. The employee is free to tender his resignation, make payment of one-month salary and quit. Hence, there is neither any active nor any passive role played by the employee. The same is nothing but transactions pertaining to services by employee to the employer in the course of or in relation to the employment. As the activities or transactions in question do not satisfy the test of supply under Section 7 of the CGST Act, 2017, levy under Section 9 is not attracted here.

Summary

Issues involved:
GST applicability on salary recovery/STDR forfeiture from employees leaving services without notice period/resigning during probation period.

Analysis:
The applicant sought an advance ruling on whether GST is payable on amounts recovered/forfeited from employees leaving services without notice period/resigning during probation. The applicant argued that based on departmental views and case laws, such recoveries should not be subject to GST as they do not constitute a supply under the CGST Act, 2017. The applicant emphasized that the transactions between employer and employee do not fall under the definition of supply as per Sec 7(1) and Schedule III of the Act.

The Authority for Advance Ruling analyzed the legal position and discussed the scope of supply under the CGST Act, 2017. It highlighted that for GST levy to apply, a taxable event of supply must occur as per Section 9 of the Act. The ruling noted that the recoveries from employees leaving services without notice period/resigning during probation do not fit into the definition of supply under Section 7(1) of the Act. The ruling also referenced the CGST (Amendment) Act, 2018, which specifies activities treated as supply under Schedule II.

The ruling concluded that the recoveries in question do not meet the criteria for supply under Section 7 of the CGST Act, 2017. It emphasized that such transactions are excluded under Schedule III as services by an employee to the employer in the course of employment. Therefore, the ruling determined that GST is not payable on amounts recovered/forfeited from employees leaving services without notice period/resigning during probation, as they do not constitute a supply under the CGST Act, 2017.

In light of the above analysis, the Authority for Advance Ruling issued a ruling stating that GST is not applicable on recoveries from employees leaving services without notice period/resigning during probation as these transactions fall outside the purview of supply under Section 7 of the CGST Act, 2017.