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TMI Blog2021 (1) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as a consideration to the employer for tolerating the act of the employee to not serve the notice period, which was the employee s agreed contractual obligation. GST is applicable on supply of taxable goods or services. Section 7(1) of the CGST Act, 2017, includes activities referred to in Schedule II in the scope of supply. Clause 5(e) to Schedule II to CGST Act 2017 , declares that 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act' shall be treated as supply of service. The condition to pay an amount as notice pay in lieu of notice period, for the employer to agree to let go an employee, normally forms part of the terms and conditions of employment. This would mean that the employee while accepting the offer of employment, has not only understood the intent on the part of the employer in prescribing this exit condition, but has also accepted it. Thus, the applicant is liable to pay GST @ 18% under the entry of services not elsewhere classified, on recovery of Notice Pay from the employees who are leaving the company without completing the notice period as specified in the Appointment Letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red between Employer and the Employee? 6. Statement containing the applicant s interpretation of law and/or facts, as the case may be, in respect of aforesaid question: 6.1 The applicant submitted that the Notice pay recovery is nothing but the amount stipulated in the employment contract for breach in serving the stipulated notice period. Since notice pay is a sum mutually agreed by the parties for breach of contract it can be regarded as a consideration flowing from the employment contract itself read with Section 74 of the Indian Contract Act, 1872 and not under any other separate contract wherein employer has agreed to refrain from doing any act against the concerned employee. 6.2 Once notice pay recovery is stipulated in the contract an employer can only sue for recovery of such amount but cannot enforce mandatory serving of the notice period. Once it is concluded that an employee cannot enforce mandatory serving of the notice period, such employer cannot be said to have refrained from an act of suing the employee for mandatory serving against the notice pay recovery. 6.3 In such scenario, notice pay recovered cannot be said to be a consideration against agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment termination notice period is outside the scope of service tax. Service tax was an indirect tax charged in India on the provision of taxable services from July 1994 until 30 June 2017, at rates ranging from 12% to 15%. It was one of a number of indirect taxes replaced by goods and services tax (GST) as from 1 July 2017. Copy of Judgment is attached herewith. Further, they have also referred the case law of M/s. Gujarat State Fertilizers Chemical Ltd (2016) wherein it was held that the cessation of employment should also be treated as employment service not liable for service tax. They also referred the decision of Allahabad CESTAT in case of M/s. HCL Learning Systems Vs CCE, Noida (service tax appeal no. 70580 of 2018) = 2019 (12) TMI 558 - CESTAT ALLAHABAD wherein it has been held (in November 2019) that when amounts are recovered out of salary already paid, such amounts would not be subject to service tax as salaries are not subject to tax. In view of the above, they viewed that payment of GST on recovery of notice pay does not have merit and accordingly, they requested to pass appropriate order. DISCUSSION FINDINGS: 8. We have considered the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice period, which was the employee s agreed contractual obligation. 12. We further note that GST is applicable on supply of taxable goods or services. Section 7(1) of the CGST Act, 2017, includes activities referred to in Schedule II in the scope of supply. Clause 5(e) to Schedule II to CGST Act 2017 , declares that 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act' shall be treated as supply of service. The condition to pay an amount as notice pay in lieu of notice period, for the employer to agree to let go an employee, normally forms part of the terms and conditions of employment. This would mean that the employee while accepting the offer of employment, has not only understood the intent on the part of the employer in prescribing this exit condition, but has also accepted it. In other words, the employee has understood and accepted the condition that in the contingency of his inability to provide the prescribed notice period, he can exercise the option of paying the notice pay as the consideration for the employer to agree to the obligation of letting him go, which the employer is bound to do as i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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