The issue pertains to the taxability of notice pay or amounts ...

Premature Resignation Notice Pay Recovery Not a Taxable Service: Tribunal Overrules Tax Demand.

Case Laws     Service Tax

October 30, 2024

The issue pertains to the taxability of notice pay or amounts recovered by employers from employees upon premature resignation. The department contended that such recovery falls under the category of 'agreeing to an obligation to refrain from an act' u/s 66E of the Finance Act, 1994, and is thus a taxable service. However, the Tribunal held that the matter is settled by the Madras High Court's decision in GE T&D, which ruled that notice pay received by an employer from an employee for premature resignation does not constitute consideration for service rendered by either party. Consequently, the Tribunal set aside the impugned order confirming the service tax demand on such notice pay recoveries, as it does not qualify as a taxable service under the law.

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