Notice Pay and Booking Cancellation Charges Not Subject to Service Tax Under Finance Act, 1994

The CESTAT ruled that "notice pay" collected from employees for not serving agreed notice periods does not constitute consideration for service and is therefore not subject to service tax. Following precedents established in M/S Balaji Medical & Diagnostic Research Centre and Shiv Vilas Resort cases, the Tribunal determined that such amounts represent compensation related to employment rather than taxable services. Similarly, amounts retained by the appellant due to booking cancellations or customer no-shows were held not to constitute a "declared service" under Section 66E(e) of the Finance Act, 1994. The adjudicating authorities failed to follow judicial protocol by disregarding established precedents. Appeal allowed. .....

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