2022 (1) TMI 903 - AAR - GST

Levy of GST - recoveries made from the employees towards providing parental insurance - notice pay recoveries made from the employees on account of not serving the full notice period - HELD THAT - In the case of IN RE M/S. JOTUN INDIA PVT. LTD. 2019 (10) TMI 482 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA and also in the case of IN RE POSCO INDIA PUNE PROCESSING CENTER PRIVATE LIMITED 2019 (2) TMI 63 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA are similar to the facts of the present case with respect to recovery of premiums from the employees, paid by the applicant on Parental Insurance Policy, there is no reason or us to deviate from the decisions taken in both the said cases and therefore we hold that, in the instant case, GST would not be payable on recoveries made from the employees towards providing parental insurance. GST on the notice pay recoveries made from the employees on account of not serving the full notice period? - HELD THAT - The levy under CGST Act, 2017 is on supply of goods or services or both. The word such as used preceding the words sale, transfer, barter, exchange, etc. indicates that the forms of supply shall be those which are enumerated therein or of similar character but not of other dissimilar forms of supply. The expression such as indicates the character of the transactions - The employee opting to resign by paying amount equivalent to month of salary in lieu of notice, has acted in accordance with the contract and that being the case no question of any forbearance or tolerance does arise. Further, as per the agreement, the resignation by the employee is not subject to any acceptance or approval and employee is free to tender his resignation, make payment of notice period salary to leave. Hence, there is neither any activity nor any passive role played by the employer. It must be noted here, that there is no consideration within the meaning of Sec.2(31)(b) of the CGST Act, 2017 flowing from an act of forbearance in as much as there is no breach of contract, as a question of any consideration for forbearance would arise in case of breach of contract. It may be concluded that, recovery of notice pay from dues of employee / payment of notice pay by the employee who could not serve the notice for the period as per contractual agreement / appointment letter does not amount to supply and therefore as per Section 7 (1A) of the CGST Act, 2017, the provisions of Schedule II does not come into play - also relying on the reasoning and decision in the case of GE T D INDIA LIMITED (FORMERLY ALSTOM T D INDIA LIMITED) VERSUS DEPUTY COMMISSIONER OF CENTRAL EXCISE 2020 (1) TMI 1096 - MADRAS HIGH COURT it is held that, the notice pay recovered by the applicant from its employees is not liable to GST. GST would not be payable on the notice pay recoveries made from the employees on account of not serving the full notice period.

Summary

Issues Involved:
1. Whether GST is payable on recoveries made from employees towards providing parental insurance.
2. Whether GST is payable on notice pay recoveries made from employees for not serving the full notice period.

Issue-wise Detailed Analysis:

Issue 1: GST on Recoveries for Parental Insurance

Applicant's Contentions:
- The parental insurance scheme is a voluntary benefit provided to reduce employees' financial burden, not a business activity.
- The insurance service is provided by a third-party insurance company, and the applicant merely facilitates this service without profit.
- The activity is not covered under the definition of "supply" under Section 7(1)(a) of the CGST Act.
- The parental insurance scheme is not incidental or ancillary to the applicant's main business of crop protection and seeds.
- Rulings in similar cases (e.g., State of Gujarat vs. Raipur Manufacturing Co. Ltd., Panacea Biotech Limited vs. Commissioner of Trade and Taxes) support the contention that such activities are not business activities.
- As per Clause (a) of Section 7(2) of the CGST Act and Entry (1) of Schedule III, the recovery made for parental insurance does not amount to supply.
- Previous rulings (e.g., M/s Jotun India Private Limited, M/s POSCO India Pune Processing Centre Private Limited) have held that such recoveries do not constitute supply under GST laws.

Authority's Observations and Findings:
- The issue was previously decided in favor of the applicant in similar cases (e.g., M/s Jotun India Private Limited, M/s POSCO India Pune Processing Centre Private Limited).
- The recovery of 100% of the parental insurance premium from employees does not amount to supply of service under Section 7 of the CGST Act.
- Therefore, GST is not payable on recoveries made from employees towards providing parental insurance.

Conclusion:
- GST is not payable on recoveries made from employees towards providing parental insurance.

Issue 2: GST on Notice Pay Recoveries

Applicant's Contentions:
- Notice pay recovery is not a consideration for any supply of goods or services but a compensation for breach of the employment contract.
- The recovery is a reasonable estimate of loss due to sudden termination of employment and not for any service provided by the applicant.
- As per Section 73 & 74 of the Indian Contract Act, such recoveries are compensations for damages.
- Previous rulings and clarifications (e.g., Education Guide by CBEC, HCL Learning Ltd., GE T&D India Ltd vs. Deputy Commr of Central Excise) support the view that notice pay recovery is not a supply under GST laws.
- Schedule III of Section 7 of the CGST Act excludes services by an employee to the employer in the course of employment from the definition of supply.

Authority's Observations and Findings:
- Similar issues were addressed in cases like M/s Bharat Oman Refineries Limited and upheld by the Madhya Pradesh Appellate Authority for Advance Ruling (MPAAAR).
- The Hon'ble Madras High Court in GE T&D India Ltd vs. Deputy Commr of Central Excise held that such recoveries do not constitute a taxable service.
- The employer does not tolerate any act but permits a sudden exit upon compensation, which is not a supply of service.
- The provisions of Schedule II of the CGST Act do not apply as there is no supply under Section 7(1A).
- The notice pay recovery does not amount to supply and is not liable to GST.

Conclusion:
- GST is not payable on the notice pay recoveries made from employees on account of not serving the full notice period.

Order:
- Question 1: GST is not payable on recoveries made from employees towards providing parental insurance.
- Question 2: GST is not payable on notice pay recoveries made from employees for not serving the full notice period.