Company recoveries for notice pay, surety bonds, canteen subsidies, and penalty forfeitures ruled outside GST scope under Schedule III

The Haryana AAR ruled that several transactions by the applicant company are outside the scope of GST supply. Notice pay recovery from employees leaving without serving mandatory notice period and surety bond forfeiture from contractual employees not completing minimum contract periods are excluded under Schedule III, not constituting consideration for supply. Subsidized canteen facility recoveries are non-taxable as they fulfill legal obligations under Factory Act, 1948. ID card reissuance charges of Rs. 100 are covered under Schedule III(1) and non-taxable. Liquidated damages for work delays, earnest money forfeiture, security deposit forfeiture, and bank guarantee forfeiture are non-taxable as they represent penalties rather than consideration for services. Written-off unclaimed creditor balances constitute income, not supply, hence outside GST scope.

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Issues Involved:
1. Taxability of Notice Pay Recovery
2. Taxability of Surety Bond Forfeiture
3. Taxability of Canteen Facility Charges
4. Taxability of Charges for Re-issuance of ID Cards
5. Taxability of Liquidated Damages
6. Taxability of Forfeiture of Earnest Money, Security Deposit, and Bank Guarantee
7. Taxability of Unclaimed Creditors Balance Written Off

Detailed Analysis:

1. Notice Pay Recovery and Surety Bond Forfeiture:
The authority referred to the CBIC circular dated 03.08.2022 and concluded that amounts received as notice pay recovery and surety bond forfeiture are not consideration for any supply of services. These amounts are covered under Schedule III of the CGST Act, 2017, and are outside the scope of supply. The authority emphasized that notice pay does not result in the provision of services by either party and is a form of compensation rather than consideration.

2. Provision of Canteen Facility:
The applicant provides a canteen facility through a third-party vendor, charging employees a nominal amount. The authority determined that this transaction is outside the purview of taxability under the GST Act. The principal supply of the applicant is consultancy services, not catering services. The third-party vendor already charges GST on the supply of food, and the applicant merely recovers part of the cost from employees.

3. Charges for Re-issuance of ID Cards:
The applicant uses in-house facilities for re-issuing ID cards and charges Rs. 100 per card. The authority concluded that this transaction does not fall under a taxable event under the GST Act, as it is covered under Schedule III(1) of the CGST Act, 2017.

4. Liquidated Damages and Forfeiture of Earnest Money, Security Deposit, and Bank Guarantee:
The authority referred to the CBIC circular dated 03.08.2022 and decided that amounts collected as liquidated damages and forfeiture of earnest money, security deposits, and bank guarantees are not taxable under GST. These amounts are not considered consideration for any supply of goods or services.

5. Unclaimed Creditors Balance Written Off:
The applicant writes off unclaimed amounts from contractors and other creditors as a credit entry in the profit and loss account. The authority concluded that these transactions do not involve services received or provided by the applicant and are outside the scope of supply under the GST Act.

Conclusion:
Upon examining the factual and legal aspects, documentary evidence, and various rulings, the authority concluded that none of the transactions on which the applicant sought advance ruling fall under the scope of supply under the CGST Act, 2017.

Ruling:
1. Notice Pay Recovery - Not taxable under GST.
2. Surety Bond Forfeiture - Not taxable under GST.
3. Canteen Facility Charges - Not taxable under GST.
4. Re-issuance of ID Cards - Not taxable under GST.
5. Liquidated Damages - Not taxable under GST.
6. Forfeiture of Earnest Money, Security Deposit, and Bank Guarantee - Not taxable under GST.
7. Unclaimed Creditors Balance Written Off - Not taxable under GST.

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