Employer's Recovery from Employee Not Taxable: Tribunal Ruling

The Tribunal held that the recovery made by the employer from the employee's salary for breaching the employment contract was not subject to service tax. The decision set aside the order demanding service tax, allowing the employer's appeal. The Tribunal members, HON'BLE MRS. ARCHANA WADHWA and HON'BLE MR. ANIL G. SHAKKARWAR, presided over the case with representatives from both parties present.

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Issues: Applicability of service tax on recovery from employee's salary for breaching employment contract.

Analysis:
The case involved a dispute regarding the applicability of service tax on the recovery made by an employer from an employee's salary in case of breach of employment contract. The employer had been served with a show cause notice demanding service tax on the amount recovered from the employee for leaving the job before the fixed term of employment was over. The Revenue considered this recovery as consideration for charging service tax.

Upon hearing both sides, it was noted that the contract between the employer and the employee specified that the employee would be paid a salary for a fixed term of employment, and if the employee left before the term ended, a certain amount of the salary already paid would be recovered by the employer. The Tribunal observed that this recovery was made from the salary already paid to the employee, and it was established that salary itself is not covered by the provisions of service tax.

Consequently, the Tribunal held that the recovery made by the employer from the employee's salary in case of breaching the employment contract was not subject to service tax. Therefore, the impugned order demanding service tax was set aside, and the appeal was allowed. The decision was pronounced in open court by the members of the Tribunal, namely HON’BLE MRS. ARCHANA WADHWA, MEMBER (JUDICIAL) and HON’BLE MR. ANIL G. SHAKKARWAR, MEMBER (TECHNICAL), with Shri Nishant Mishra representing the Appellant and Shri Anupam Kumar Tiwari representing the Respondent.

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