Employee Recovery Not Subject to GST under CGST Act

The Authority for Advance Ruling held that GST is not applicable on recoveries from employees leaving services without notice period/resigning during probation. The ruling determined that such recoveries do not constitute a supply under the CGST Act, 2017, as they are excluded under Schedule III as services by an employee to the employer in the course of employment. Therefore, GST is not payable on amounts recovered/forfeited in these circumstances.

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Issues involved:
GST applicability on salary recovery/STDR forfeiture from employees leaving services without notice period/resigning during probation period.

Analysis:
The applicant sought an advance ruling on whether GST is payable on amounts recovered/forfeited from employees leaving services without notice period/resigning during probation. The applicant argued that based on departmental views and case laws, such recoveries should not be subject to GST as they do not constitute a supply under the CGST Act, 2017. The applicant emphasized that the transactions between employer and employee do not fall under the definition of supply as per Sec 7(1) and Schedule III of the Act.

The Authority for Advance Ruling analyzed the legal position and discussed the scope of supply under the CGST Act, 2017. It highlighted that for GST levy to apply, a taxable event of supply must occur as per Section 9 of the Act. The ruling noted that the recoveries from employees leaving services without notice period/resigning during probation do not fit into the definition of supply under Section 7(1) of the Act. The ruling also referenced the CGST (Amendment) Act, 2018, which specifies activities treated as supply under Schedule II.

The ruling concluded that the recoveries in question do not meet the criteria for supply under Section 7 of the CGST Act, 2017. It emphasized that such transactions are excluded under Schedule III as services by an employee to the employer in the course of employment. Therefore, the ruling determined that GST is not payable on amounts recovered/forfeited from employees leaving services without notice period/resigning during probation, as they do not constitute a supply under the CGST Act, 2017.

In light of the above analysis, the Authority for Advance Ruling issued a ruling stating that GST is not applicable on recoveries from employees leaving services without notice period/resigning during probation as these transactions fall outside the purview of supply under Section 7 of the CGST Act, 2017.

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