TaxTMI 
TaxTMI 
2021 (1) TMI 431
X X X X Extracts X X X X
X X X X Extracts X X X X
....-382220 (Gujarat), are entering into contract with employees by issuing "Appointment Letter". Under appointment letter, it has been clearly mentioned that, either parties shall serve a three months mandatory notice to terminate this contract. Thus, three months' notice is mandatory for all employees/employer. In case, if any employee doesn't serve the notice period after tendering the resignation, then as per contract (Appointment Letter) condition, company is entitled to recover the notice pay from the agreed portion of salary to compensate the loss to company. The condition is hereby reproduced below: "Your services can be terminated by giving three months' notice or notice pay in lieu of notice period from either side.". 2. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is a sum mutually agreed by the parties for breach of contract it can be regarded as a consideration flowing from the employment contract itself read with Section 74 of the Indian Contract Act, 1872 and not under any other separate contract wherein employer has agreed to refrain from doing any act against the concerned employee. 6.2 Once notice pay recovery is stipulated in the contract an employer can only sue for recovery of such amount but cannot enforce mandatory serving of the notice period. Once it is concluded that an employee cannot enforce mandatory serving of the notice period, such employer cannot be said to have refrained from an act of suing the employee for mandatory serving against the notice pay recovery. 6.3 In such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry from his previous employers after deducting the notice period as per the job agreement with them. Therefore, in Tribunal's considered view, the actual salary received by the assesse is only taxable and, therefore, Tribunal allow this ground of appeal of the assesse. 6.6 The applicant further stated that above ruling clearly support the view that notice pay recovery is nothing but an adjustment of salary and, hence, does not tantamount to any supply which is chargeable to GST. 7. At the time of personal hearing held through Video Conferencing on 09.07.2020, the Authorised Representative of the applicant, Shri Satyajit D Naik reiterated the facts as stated in the Application. 7.1 Further, the applicant via email dated 15.07.2020 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal hearing. We also considered the issue involved, on which advance ruling is sought by the applicant, relevant facts & the applicant's interpretation of law. 8.1 At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act. 9. In this case, a moot point is to be decided is whether the applicant is liable to pay GST on recovery of Notice Pay from the employees who are leaving the company without completing the notice period as specified in the Appointment Letter issued as per the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er for "tolerating the act" of the employee to not serve the notice period, which was the employee's agreed contractual obligation. 12. We further note that GST is applicable on supply of taxable goods or services. Section 7(1) of the CGST Act, 2017, includes activities referred to in Schedule II in the scope of supply. Clause 5(e) to Schedule II to CGST Act 2017, declares that 'agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act' shall be treated as supply of service. The condition to pay an amount as notice pay in lieu of notice period, for the employer to agree to let go an employee, normally forms part of the terms and conditions of employment. This would mean that the empl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dden exit. The definition in clause (e) of Section 66E as extracted above is not attracted to the scenario before me as, in my considered view, the employer has not 'tolerated' any act of the employee but has permitted a sudden exit upon being compensated by the employee in this regard. Though normally, a contract of employment qua an employer and employee has to be read as a whole, there are situations within a contract that constitute rendition of service such as breach of a stipulation of non-compete. Notice pay, in lieu of sudden termination however, does not give rise to the rendition of service either by the employer or the employee." Further, we have also perused the case law of M/s. Gujarat State Fertilizers & Ch....