Notice-period recovery from departing employees is not consideration for tolerating an act and does not create a taxable service.

Notice-period recovery from employees leaving without serving the stipulated notice does not constitute consideration for a declared service of tolerating an act under the Finance Act, 1994. Taxability requires an activity performed by one person for another for consideration. A stipulated payment permitting premature employment exit only addresses the consequence of an employee's departure; it does not establish that the employer agreed to tolerate an act as a taxable service. The employment arrangement therefore involves no rendition of service by either party in relation to the notice-period recovery, which is not taxable under the declared-service provision.

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Issues: Whether notice-period recovery from employees who exit employment without serving the stipulated notice constitutes a declared service of tolerating an act under Section 66E(e) of the Finance Act, 1994.

Analysis: Taxability requires an activity carried out by one person for another for consideration. Notice-period recovery merely permits an employee's sudden exit on payment of the stipulated amount; it does not evidence an agreement by the employer to tolerate an act as a taxable service. The employment arrangement, including the consequence of premature exit, does not result in rendition of service by either employer or employee.

Conclusion: Notice-period recovery is not consideration for a service of tolerating an act or situation and is not taxable under Section 66E(e) of the Finance Act, 1994.

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