2024 (8) TMI 790 - AT - Service Tax

Liability of service tax under Section 66E of Finance Act for tolerating an act - Notice Pay i.e. the amount recovered from an employee for quitting a job before the time period prescribed under an agreement/ job letter - HELD THAT - The issue involved in the present case is no longer res-integra in view of the decision in C.S.T. -SERVICE TAX AHMEDABAD VERSUS INTAS PHARMACEUTICALS 2021 (6) TMI 906 - CESTAT AHMEDABAD where it was held that the amount recovered from the employee for quitting the employment without serving during notice period the said amount is not liable to service tax. In the present case the impugned order is not sustainable - Appeal allowed.

Summary

Issues:
Whether the demand of service tax under Section 66E of Finance Act for 'tolerating an act' for the Notice Pay is sustainable or not.

Analysis:
The Appellate Tribunal considered the issue of whether the demand of service tax under Section 66E of the Finance Act for 'tolerating an act' for the Notice Pay is sustainable. The appellant argued that the Notice Pay of an employee is not a declared service and cited relevant judgments. The Revenue reiterated the findings of the impugned order. The Tribunal examined the submissions and records. It referred to a judgment involving Intas Pharmaceuticals, where the High Court clarified that amounts paid by an employer to an employee for premature termination of employment are not chargeable to service tax. The Tribunal dismissed the appeal based on the settled issue by the High Court of Madras.

In another case involving Shriram Pistons and Rings Limited, the Tribunal held that recovery from an employee for breaching the contract is not liable to service tax. The Tribunal referenced the High Court's decision in the GE T & D India Limited case to support its ruling. The Tribunal emphasized that the recovery from an employee for quitting employment without serving the notice period is not subject to service tax, as per Section 66E read with Section 65(44) of the Finance Act, 1944. Consequently, the impugned order was set aside, and the appeal was allowed.

Therefore, based on the precedents and interpretations of relevant provisions, the Tribunal concluded that the demand of service tax for Notice Pay is not sustainable. The judgments highlighted the distinction between amounts paid for premature termination of employment and services provided during employment. The Tribunal's decision aligned with the principles established in previous cases, leading to the dismissal of the appeal and setting aside of the impugned order.