Service Tax on Recovery of Notice Pay

[Bhairob Chandra Bor]

Dear Exparts,

as per service agreement we recover the notice pay from the employees who leaves the company with a short notices. In this case is the company liable to pay service tax as per the service tax rules? if applicable kindly advice sections/rules in which it is mentioned. please also advice what will be in case of notice pay paid by company to its employees. Kindly advice.

Kind Regards.

BCB

[YAGAY andSUN]

Dear Bhairob,

There is no such provision in the Finance Act, 1994 read with Service Tax Rules made thereunder. Service provided to employee by employers and recovery of Notice Period amount from the employees who do not serve it does not come under the purview of Finance Act, 1994. Hence, in our opinion service tax would not be applicable on such recoveries.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

By paying an amount in lieu of Notice the employee is not receiving any service from the employer. Hence no service tax is payable.

AI Summary

Service tax not leviable on recovery or payment of notice pay as no taxable service is rendered. The recovery of notice pay from employees and payments in lieu of notice by employers do not constitute taxable services under the Finance Act framework and Service Tax Rules, because no service is rendered to the employee and there is no provision classifying such notice pay transactions as subject to service tax.