9911796707
TMI Blog2024 (7) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... yee to remain in the organization - the recovery of bonus/allowance by the applicant is in same lines with that of the forfeiture of salary or recovery of bond amount in the event of the employee leaving the employment before the minimum agreed period which is not taxable under GST as per para 7.5 of Circular No. 178/10/2022-GST dated 03.08.2022. Retention bonus, joining bonus, work from home allowance and expenses under TAP are also in the nature of perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and employee and hence not taxable under GST. The recovery of joining bonus, retention bonus, work from home allowance and expenses under TAP are not taxable under GST. - DR. M.P. RAVI PRASAD SRI. KIRAN REDDY T, MEMBER Represented by : Ms. Smritikona Dutta, DAR ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 AND UNDER SECTION 98(4) OF THE KGST ACT, 2017 M/s. Fidelity Information Services India Private Limited, 2nd, 3rd and 6th Floor, Tower 3, WRAP Building, EPIP, Zone 1, Whitefield Road, Bengaluru-560 066 (hereinafter referred to as 'The applicant'), having GSTIN 29AAGCS0395D1ZA have filed an application f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case. b. The Company in addition to the existing annual total consideration, offers a retention bonus to incentivize the employees and retain them for a longer duration. Such disbursement of retention bonus is associated with a condition which demands serving of pre-defined period by the employee in the organization. In case where the employee wishes to voluntarily exit the organization within stipulated time period from the payout date, such retention bonus is recovered from the employee. The same can be construed equivalent to recovery of salary which is paid in advance to the employee under the employment contract and not a consideration towards any service rendered by employer to the employee. In case where the employee voluntarily moves to a different role through an IJP (Internal Job Posting') within stipulated time period from the payout date, such retention bonus is recovered from the employee. 5.3 Recovery of joining bonus: The applicant states that similar to retention bonus, the Company in order to incentivize an employee to join the organization, offers a one-time joining bonus which is payable with the first salary of the employee. Such disbursement of joining bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e more towards the growth of the organization. The amount under TAP is paid with a pre-agreed condition that in case the employee wishes to exit the organization, the Company has a right to recover all such payments made to the employees in the preceding 12 months from the date of certification. 6. Applicant's Interpretation of Law: 6.1 Taxability of recovery of bonus/ allowance: i. The applicant states that they are receiving an amount from employee on account of recovery of bonus/ allowance, however, no activity is performed by employer in return for such consideration. There is a contractual relationship between employer and employee for rendition of employment services in lieu of remuneration as per the terms of contract. However, there is no direct contractual relationship for recovery of bonus/ allowance. The aspects related to bonus/ allowances recovery arises only at the time of termination of contract i.e., when the employee wishes not to serve the stipulated period and instead compensate the employer in lieu of the inconvenience caused due to his premature termination. Therefore, bonus/ allowance recovery can be said to be compensatory in nature. ii. Moreover, the emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt contract. Thus, in the instant case, the applicant has merely facilitated the exit of the employee upon imposition of a cost upon him for the sudden exit. Therefore, the applicant cannot be said to have rendered any service per se as the employer has not Tolerated' any act of the employee in terms of Section 66E (e) of Finance Act, 1994 but has permitted a sudden exit upon being compensated by the employee in this regard. Thus, it can be said that amount paid by employee to applicant (i.e., bonus/ allowance) shall not be chargeable to GST. d. Consequently, it can be construed that where employee is receiving amount from employer for premature termination, it is considered as to be a part of employment contract. Therefore, in a reverse situation, wherein an employer is receiving compensation from employee in lieu of unserved notice period, then in such a case it should not be considered as a fresh obligation or toleration on the part of employer as the relevant clauses were already available in the employment contract. iv. Further, it may be noted that condition to recover the bonus/ allowance is intended to compensate the employer for the disruption in work or inconvenience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments, is accepted by the employee at the time of receiving such bonus/ allowance, goes to prove that the employee has already accepted an obligation to surrender the bonus/ allowance earned by him during the course of the employment, as part of the terms and conditions of the employment documents. Such recovery of bonus/ allowance in pursuance of the employment documents cannot partake the character of any consideration paid by the employee to the employer for any activity said to have been carried out by the employer. xiii. Furthermore, while determining tax implication on a transaction, it is crucial to understand the primary intention of the parties flowing from the contract/ agreement. In transaction involving recovery of bonus/ allowance the primary intention of the parties is not to earn consideration through bonus/ allowance recovery. Such amounts are sub-servient and ancillary to the primary objective of employment contract i.e., rendition of services by an employee to employer. Recovery of bonus/ allowance may be considered as an adjustment or reduction in consideration against the original supply (i.e., bonus/ allowance) but shall not be considered as a consideration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the purpose of the agreement is rendition of employment service and not recovery of bonus or allowance. Thus there is no underlying agreement for bonus/allowance recovery and it just emerges as a condition of not serving the pre-defined period and is not an independent contract in itself to qualify as a supply. Hence recovery of bonus allowance is a condition of contract and cannot be construed as a consideration for contract. D. Analysis in light of Circular No. 178/10/2022-GST dated 03 August 2022 issued under GST i. Owing to ambiguity regarding taxability of an activity/ transaction as supply of service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act, the Government vide Circular No. 178/10/2022-GST dated 03 August 2022 has clarified the scope of entry 5 (e) of Schedule II (i.e., agreeing to the obligation to refrain from an act or to tolerate an act or situation, or to do an act) of CGST Act. ii. The expression in entry 5 (e) of Schedule II of CGST Act have following three limbs which are discussed by way of examples: 1) Agreeing to the obligation to refrain from an act -For instance, noncompete agreements, where one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l arrangement must be an independent arrangement in its own right. Such arrangement or agreement can take the form of an independent stand-alone contract or may form part of another contract. Thus, a person (the first person) can be said to be making a supply by way of refraining from doing something or tolerating some act or situation to another person (the second person) if the first person was under an obligation to do so and then performed accordingly. 7. There has to be an express or implied agreement; oral or written, to do or abstain from doing something against payment of consideration for doing or abstaining from such act for a taxable supply to exist An agreement to do an act or abstain from doing an act or to tolerate an act or a situation cannot be imagined or presumed to exist just because there is a flow of money from one party to another. Unless there is an express or implied promise by the recipient of money to agree to do or abstain from doing something in return for the money paid to him, it cannot be assumed that such payment was for doing an act or for refraining from an act or for tolerating an act or situation. b. Therefore, for an activity to be taxable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f bonus, WFH allowance or amount under TAP is not as a consideration for tolerating the act of employee of not serving the pre-agreed period in the organization but a mere recovery for dissuading the non-serious employees from taking up the employment. Thus, the employer is not required to discharge GST on the amount recovered from employee on account of bonus/ allowance recovery. 6.2 The applicant relies on the judgment of the Hon hie Madras High Court in the matter of M/s GE T D India versus Deputy Commissioner of Central Excise, CESTAT, Ahmedabad in the matter of M/s Krishak Bharti Co Operative Ltd versus C.C.E. S.T.-Surat, CESTAT Allahabad in the matter of 'M/S HCL LEARNING LIMITED VERSUS COMMISSIONER OF CENTRAL GOODS SERVICE TAX, Noida , CESTAT Bangalore in the matter of M/s XL Health Corporation India Pvt Ltd versus Commissioner of Central Tax, Bengaluru South Commissionerate. In light of legal and factual grounds and judicial precedents discussed in preceding paragraphs, it can be concluded that no service is rendered by employer or employee while making recovery of bonus/ allowance. Employer is merely facilitating an early exit of employee by imposing a cost in lieu of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, it was already known to both employer and employee at the time of disbursement of this amount that the option is always available for early termination. Therefore, there is no question of any tolerance of act on part of the employer. d) Merely because the applicant is being compensated does not mean that any service has been rendered by him or he has tolerated an act for premature exit. e) The compensation received by the applicant is not related to any service rendered by employer to employee and vice-versa. The applicant has merely facilitated early exit of employee in lieu of compensation for premature termination of contract. f) In any case, bonus / allowance recoveries are nothing but recovery from amounts already paid to the employee under or in connection with his / her employment contract with the Applicant. It is only recovery of bonus / allowance paid in advance and hence not liable to GST. g) Bonus / allowance recovery emerges as a compensation for early exit to discourage the non-serious candidates from taking up employment and thus, cannot be equated to consideration. h) Bonus / allowances received by employee is outside the purview of GST. In this regard, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ize the employees and retain them for a longer duration. Such disbursement of retention bonus is associated with a condition which demands serving of pre-defined period by the employee in the organization. In case where the employee wishes to voluntarily exit the organization within the stipulated period from the payout date, such retention bonus is recovered from the employee. In case where the employee voluntarily moves to a different role through an IJP ('Internal Job Posting') within stipulated period from the payout date, such retention bonus is recovered from the employee. b) Joining bonus: The applicant states that similar to retention bonus, the Company, in order to incentivize an employee to join the organization, offers a one-time joining bonus which is payable with the first salary of the employee. Such disbursement of joining bonus is subject to a condition which demands serving of pre-defined period by the employee in the organization. In case where the employee wishes to voluntarily exit the organization within the stipulated time from the date of joining ('DOJ'), such joining bonus is recovered from the employee. c) Work from home ('WFH') allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of salary or recovery of bond amount in the event of the employee leaving the employment before the minimum agreed period are incorporated in the employment contract to discourage non-serious candidates from taking up employment. The said amounts are recovered by the employer not as a consideration for tolerating the act of such premature quitting of employment but as penalties for dissuading the non-serious employees from taking up employment and to discourage and deter such a situation. Further, the employee does not get anything in return from the employer against payment of such amounts. Therefore, such amounts recovered by the employer are not taxable as consideration for the service of agreeing to tolerate an act or a situation. 13. The Applicant is recovering retention bonus, joining bonus, work from home allowance and expenses under TAP, only when the employee wishes to voluntarily exit the organization within the stipulated time period as mentioned in the terms and conditions laid out with respect to each bonus/allowance. The intention behind such bonus/allowance is to incentivize and motivate the employee to remain in the organization. Thus, the recovery of bonus/allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
