Tribunal Rules No Service Tax on Notice Pay for Premature Employment Termination, Setting Aside Previous Order.

The Appellate Tribunal concluded that the demand for service tax under Section 66E of the Finance Act for "tolerating an act" related to Notice Pay is unsustainable. It set aside the impugned order, allowing the appeal. The Tribunal relied on precedents, including the High Court of Madras, which clarified that payments for premature termination of employment are not subject to service tax. The Tribunal emphasized that recovery from an employee for breaching a contract or quitting without serving the notice period is not liable for service tax according to Section 66E and Section 65(44) of the Finance Act, 1944.

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Issues:
Whether the demand of service tax under Section 66E of Finance Act for 'tolerating an act' for the Notice Pay is sustainable or not.

Analysis:
The Appellate Tribunal considered the issue of whether the demand of service tax under Section 66E of the Finance Act for 'tolerating an act' for the Notice Pay is sustainable. The appellant argued that the Notice Pay of an employee is not a declared service and cited relevant judgments. The Revenue reiterated the findings of the impugned order. The Tribunal examined the submissions and records. It referred to a judgment involving Intas Pharmaceuticals, where the High Court clarified that amounts paid by an employer to an employee for premature termination of employment are not chargeable to service tax. The Tribunal dismissed the appeal based on the settled issue by the High Court of Madras.

In another case involving Shriram Pistons and Rings Limited, the Tribunal held that recovery from an employee for breaching the contract is not liable to service tax. The Tribunal referenced the High Court's decision in the GE T & D India Limited case to support its ruling. The Tribunal emphasized that the recovery from an employee for quitting employment without serving the notice period is not subject to service tax, as per Section 66E read with Section 65(44) of the Finance Act, 1944. Consequently, the impugned order was set aside, and the appeal was allowed.

Therefore, based on the precedents and interpretations of relevant provisions, the Tribunal concluded that the demand of service tax for Notice Pay is not sustainable. The judgments highlighted the distinction between amounts paid for premature termination of employment and services provided during employment. The Tribunal's decision aligned with the principles established in previous cases, leading to the dismissal of the appeal and setting aside of the impugned order.

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