2022 (12) TMI 411 - HC - GST

Refund of GST paid on notice pay received from the erstwhile employees - non-constitution of GST Appellate Tribunal - It is the case of the petitioner that since the GST Appellate Tribunal has not been constituted, the petitioner has no other remedy other than to approach this Court under Article 226 of the Constitution of India - HELD THAT - The petitioner is entitled to succeed. The terms of Ext.P8 Circular specifically deal with the question arising for consideration in this case. The relevant portion of the Circular, which has been extracted hereinabove, clarifies that the amount of money received by the petitioner as notice pay from erstwhile employees is not a taxable transaction for the purposes of the GST laws. As rightly contended by the learned senior counsel, the decisions of the Supreme Court in NAVNIT LAL C. JAVERI VERSUS KK. SEN, APPELLATE ASSISTANT COMMISSIONER OF INCOME-TAX, BOMBAY 1964 (10) TMI 16 - SUPREME COURT which was applied and followed in KP VARGHESE VERSUS INCOME-TAX OFFICER, ERNAKULAM, AND ANOTHER 1981 (9) TMI 1 - SUPREME COURT are binding precedents for the proposition that Circulars in the nature of Ext.P8 are binding on the Department and no officer can take a view contrary to stipulations contained in such Circulars. The fact that the Circular was issued only after the issuance of Ext.P1 order of the first appellate authority is no reason to hold that the petitioner is not entitled to the benefits of the Circular. The contention raised by the learned counsel for the respondent Department that the petitioner has an effective alternative remedy before the GST Appellate Tribunal does not appeal to this Court for the simple reason that the GST Appellate Tribunal is yet to be constituted. The fact that the period of limitation will start to run only from the date of the constitution of the Appellate Tribunal is no solace to the petitioner. The petitioner is, therefore, entitled to exercise the jurisdiction of this Court under Article 226 of the Constitution of India to challenge the orders impugned in this writ petition. Petition allowed.

Summary

Issues Involved:
1. Liability to pay GST on notice pay received from former employees.
2. Applicability of the Central Board of Indirect Taxes and Customs Circular No.178/10/2022-GST.
3. Retrospective application of beneficial Circulars.
4. Maintainability of the writ petition in the absence of the GST Appellate Tribunal.

Issue-Wise Detailed Analysis:

1. Liability to Pay GST on Notice Pay Received from Former Employees:
The petitioner, a non-banking finance company, challenged the appellate authority's decision that upheld the original authority's order, which rejected the claim for a refund of GST paid on notice pay received from former employees. The petitioner argued that the notice pay should not be subject to GST as it is not a consideration for any service rendered but rather a penalty for premature termination of employment.

2. Applicability of the Central Board of Indirect Taxes and Customs Circular No.178/10/2022-GST:
The petitioner relied on Circular No.178/10/2022-GST dated 3.8.2022, which clarified that amounts recovered by the employer as notice pay are not taxable as consideration for the service of agreeing to tolerate an act or situation. The Circular stated that such amounts are penalties to discourage non-serious employees and do not constitute a taxable service.

3. Retrospective Application of Beneficial Circulars:
The petitioner contended that the beneficial Circular should apply retrospectively to all past transactions, citing the Supreme Court's judgment in Suchitra Components Ltd. v. Commissioner of Central Excise (2006) 12 SCC 452. The Court agreed, noting that Circulars in the nature of Ext.P8 are binding on the GST Department and must be applied retrospectively, as established in the judgments of Navnit Lal C. Javeri v. K.K. Sen (1965) 56 ITR 198 and K.P. Varghese v. Income Tax Officer (1981) 4 SCC 173.

4. Maintainability of the Writ Petition in the Absence of the GST Appellate Tribunal:
The respondent Department argued that the writ petition was not maintainable as the petitioner could wait for the constitution of the GST Appellate Tribunal. However, the Court held that the petitioner had no other remedy due to the non-constitution of the Tribunal and was entitled to approach the Court under Article 226 of the Constitution of India. The Court emphasized that the period of limitation starting from the date of the Tribunal's constitution provided no immediate relief to the petitioner.

Conclusion:
The Court concluded that the petitioner was entitled to succeed. The Circular No.178/10/2022-GST clarified that notice pay is not taxable under GST laws. The Court held that the Circular should apply retrospectively and is binding on the Department. The writ petition was allowed, and the orders rejecting the petitioner's refund application were quashed. The matter was remanded to the respondent for reconsideration in light of the judgment.