2022 (1) TMI 903 - AAR - GST

GST not payable on employee recoveries for parental insurance or notice pay under CGST Act

In Re: M/s. Syngenta India Limited

In Re: M/s. Syngenta India Limited - [2022] 99 G S.T.R. 252 (AAR - Mah) Issues Involved:1. Whether GST is payable on recoveries made from employees towards providing parental insurance.2. Whether GST is payable on notice pay recoveries made from employees for not serving the full notice period.Issue-wise Detailed Analysis:Issue 1: GST on Recoveries for Parental InsuranceApplicant's Contentions:- The parental insurance scheme is a voluntary benefit provided to reduce employees' financial burden, not a business activity.- The insurance service is provided by a third-party insurance company, and the applicant merely facilitates this service without profit.- The activity is not covered under the definition of 'supply' under Section 7(1)(a) of the CGST Act.- The parental insurance scheme is not incidental or ancillary to the applicant's main business of crop protection and seeds.- Rulings in similar cases (e.g., State of Gujarat vs. Raipur Manufacturing Co. Ltd., Panacea Biotech Limited vs. Commissioner of Trade and Taxes) support the contention that such activities are not business activities.- As per Clause (a) of Section 7(2) of the CGST Act and Entry (1) of Schedule III, the recovery made for parental insurance does not amount to supply.- Previous rulings (e.g., M/s Jotun India Private Limited, M/s POSCO India Pune Processing Centre Private Limited) have held that such recoveries do not constitute supply under GST laws.Authority's Observations and Findings:- The issue was previously decided in favor of the applicant in similar cases (e.g., M/s Jotun India Private Limited, M/s POSCO India Pune Processing Centre Private Limited).- The recovery of 100% of the parental insurance premium from employees does not amount to supply of service under Section 7 of the CGST Act.- Therefore, GST is not payable on recoveries made from employees towards providing parental insurance.Conclusion:- GST is not payable on recoveries made from employees towards providing parental insurance.Issue 2: GST on Notice Pay RecoveriesApplicant's Contentions:- Notice pay recovery is not a consideration for any supply of goods or services but a compensation for breach of the employment contract.- The recovery is a reasonable estimate of loss due to sudden termination of employment and not for any service provided by the applicant.- As per Section 73 & 74 of the Indian Contract Act, such recoveries are compensations for damages.- Previous rulings and clarifications (e.g., Education Guide by CBEC, HCL Learning Ltd., GE T&D India Ltd vs. Deputy Commr of Central Excise) support the view that notice pay recovery is not a supply under GST laws.- Schedule III of Section 7 of the CGST Act excludes services by an employee to the employer in the course of employment from the definition of supply.Authority's Observations and Findings:- Similar issues were addressed in cases like M/s Bharat Oman Refineries Limited and upheld by the Madhya Pradesh Appellate Authority for Advance Ruling (MPAAAR).- The Hon'ble Madras High Court in GE T&D India Ltd vs. Deputy Commr of Central Excise held that such recoveries do not constitute a taxable service.- The employer does not tolerate any act but permits a sudden exit upon compensation, which is not a supply of service.- The provisions of Schedule II of the CGST Act do not apply as there is no supply under Section 7(1A).- The notice pay recovery does not amount to supply and is not liable to GST.Conclusion:- GST is not payable on the notice pay recoveries made from employees on account of not serving the full notice period.Order:- Question 1: GST is not payable on recoveries made from employees towards providing parental insurance.- Question 2: GST is not payable on notice pay recoveries made from employees for not serving the full notice period.