Employment-linked notice-period recoveries are outside GST because they are excluded from supply under Schedule III.

Amounts recovered from employees for shortfall in notice period or for resigning during probation are not taxable under GST when they arise from the employment relationship. The AAR held that GST under section 9 applies only where there is a supply within section 7, and that employee services in the course of employment are excluded from supply by Schedule III. The recovery was treated as part of the employment contract, not as separate consideration for an independent supply of goods or services. GST was therefore held not payable on the forfeited or recovered amount.

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Issues: Whether GST is payable on amounts recovered or forfeited from employees for not serving the notice period or resigning during the probation period, and whether such recovery constitutes a taxable supply under the GST law.

Analysis: The authority held that levy under section 9 is attracted only when there is a supply within the meaning of section 7. It examined the nature of the employee recovery and found that the amount deducted from final settlement on account of notice-period shortfall is integrally connected with the employment relationship. Services by an employee to the employer in the course of or in relation to employment are specifically placed outside the scope of supply by Schedule III. The transaction was therefore treated as neither a supply of goods nor a supply of services, and the recovery could not be characterized as a separate taxable consideration for any independent supply.

Conclusion: GST is not payable on the amount recovered or forfeited from employees for leaving service without serving notice period or for resigning during probation, as the transaction falls outside the ambit of supply.

Final Conclusion: The ruling grants the applicant relief by holding that the impugned employee recovery is not taxable under GST.

Ratio Decidendi: Amounts recovered from employees as notice-period recovery or probation-related forfeiture, when arising out of the employment contract and falling within the employee-employer relationship, are excluded from supply by Schedule III and do not attract GST.

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