TaxTMI 
TaxTMI 
2022 (1) TMI 186
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.... payable on the recoveries made from the employees towards providing bus transportation facility? If yes, whether the Applicant is exempted under Notification No. 12/2017 Central Tax (Rate)? (c) Whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT: 2.1 M/s Emcure Pharmaceuticals Limited, the Applicant, a pharmaceutical company with registered office at Emcure House, T-184, M.I.D.C. Bhosari, Pune 411026, Maharashtra, engaged in developing, manufacturing and marketing of pharmaceutical products, provides canteen and bus transportation facility to its employees as a part and parcel of....
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....activities which are having direct nexus with the main business can be said to be ancillary or incidental. However, canteen facility is not related to or connected with the principle business of supply of pharmaceutical goods. Hence, the same is not incidental or ancillary to the main business of the Applicant. Thus, said canteen facility cannot be taxed under GST. 2.8 In support of the above contention, the Applicant relies on the case of Deputy Commissioner of Commercial Taxes vs. Thirumagal Mills Ltd. [1967 (20) STC 287 Mad]. 2.9 Applicant also relies on the decision of the Hon'ble Delhi High Court, in the case of Panacea Biotech Limited vs. Commissioner of Trade and Taxes [(2013) 59 VST 524 (Del.)] wherein the Hon'ble Court held that, selling of used cars cannot by any stretch of the imagination be characterized as "ancillary" or incidental to the business of a pharmaceutical company. 2.10 Without prejudice to the above, the canteen facility provided by Applicant is excluded from the scope of supply in terms of Clause (a) of Section 7 (2) of the CGST Act. 2.11 The canteen facility provided by the Applicant is specifically excluded from the coverage of 's....
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....nt in respect of canteen recovery equally applies so far as the bus transportation is concerned. Therefore, bus transportation facility is excluded from the purview of 'supply' in terms of Section 7 (2) (a) read with Schedule-III to the CGST Act. 2.29 Without prejudice to the above, it is settled position under G5T regime that employee recoveries does not amount to 'supply' 2.29.1 The Applicant further submits that the recovery towards bus transportation facility does not amount to 'supply' in light with the advance rulings pronounced by this Hon'ble Authority. 2.30 Applicant's Interpretation with respect to the applicability of exemption from G5T in respect of provision of Non-AC bus transportation facility to its employees. 2.30.1 Transportation of employees by the Applicant through usage of Non-AC buses would merit classification under the Tariff 9964 as "Passenger Transportation Services". It is submitted that the Annexure for Scheme of classification of services appended to Notification 11/2017-CTR provides the manner for classification of services. Local transportation services of passengers through buses are covered under Tariff 99....
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....er in the course of employment or in relation to employment. Thus, any activity/transaction undertaken in course of employment or in connection with it has been specifically excluded from the ambit of supply. 2.31.4 As per the "Employment Agreement", notice pay recovery is merely a recovery of the salary paid by the Applicant to its employees. Therefore, the same is an integral part of the salary benefits and deduction which is provided in the course of employment services. Hence, GST will not be payable on such recovery made by the Applicant. 2.31.5 In the case of GE T&D India Limited [2020 (1) TMI 1096], the Hon'ble Madras High Court held that the notice pay recovery will not attract service tax as it a part of the employees' salary. 2.31.6 Further, the Hon'ble Tribunal in the case of HCL Learning Ltd. [2019 (12) TMI 558] has also held that notice pay recovery is not liable to service tax. 2.317 In the above case laws notice pay recovery has been held as a part of the salary only and not as any separate transaction and should be treated as a deduction in the course of employment services only. Since, services provided by the employee is not liable to GST, ....
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....n that any amount charged towards any default should not be treated at par with consideration under service tax regulations. The said analogy would equally be applicable in respect of the definition of consideration provided in the CGST Act. 2.32.3 In the present case, the notice pay is not recovered by the Applicant in lieu of or in return for any activity performed and therefore, cannot be treated as a consideration for performance of any activity. Since, there is no consideration involved in the notice pay recoveries, the said transaction will not amount to supply as per Section 7 (1) (a) of the CGST Act and hence, no GST would be payable by the Applicant on this transaction. 2.33 Notice pay collected by the Applicant from its employees are in the nature of compensation for damages for breach of contract. 2.33.1 The Applicant submits that upon breach of contract, the aggrieved party is entitled to claim compensation for the breach of contract. Such compensation is a legal and statutory right provided under Section 73 and 74 of the Indian Contract Act, 1872, and even without any specific clause in the contract for the damages or compensation payable upon the breach of co....
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.... SUBMISSION DATED 25.11.2021:- 2.35.1 The Applicant is not availing any ITC on the input services of canteen and bus transportation. The Applicant has reversed the entire tax amount on monthly basis on canteen services at the month end to the expenditure account. With regard to bus transportation services, vendor, a proprietor, has not charged any GST which is paid reverse charge mechanism by applicant and no ITC has been availed on the same. 2.36.1 In light of the submissions and judicial precedents, it is submitted that no GST shall be payable on Notice Pay Recoveries made by the Applicant. Further, reliance is placed on the decision In the case of K.N. Foods Industries Pvt. Ltd. [2020 (1) TMI 6 - CESTAT ALLAHABAD] wherein the revenue authorities alleged that the receipt of ex-gratia payment is towards 'obligation to tolerate an act'. The Hon'ble Allahabad CESTAT held that the amount received as compensation towards recovery of loss from unintended events cannot be treated as 'obligation to tolerate an act' and said amount cannot be said as payment towards any service. 2.36.2 Reliance is also placed in the decision in the case of South Eastern Coalfie....
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....le accepting the offer of employment, has not only understood the intent on the part of the employer in prescribing this exit condition, but has also accepted it. in other words, the employee has understood and accepted the condition that in the contingency of his inability to provide the prescribed notice period, he can exercise the option of paying the notice pay as the consideration for the employer to agree to the obligation of letting him go, which the employer is bound to do as it is part of the terms and conditions already agreed to and settled between them. In our view, therefore, this transaction of the employer agreeing to the obligation of tolerating an act (quitting without any advance notice) on the part of the employee, for payment of a sum (notice pay), will be covered under Clause 5(e) to Sch. II to CGST Act 2017, as a declared service. 4. The above contention is also endorsed by Hon Gujarat authority for advance ruling in case of M/s. Amneal Pharmaceuticals Pvt. Ltd. Advance ruling No. GUJ/GAAR/R/51/2020 DATED 30/07/2020. Hence, GST is leviable on notice pay recovery. 04. HEARING 4.1 Preliminary e-hearing in the matter was held on 02.06.2021. Authorized Re....
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....n 7 of the Central Goods and Services Tax Act, 2017 (CGST Act), for a transaction to qualify as supply, it should essentially be made in the course or furtherance of business. We find that, the applicant is engaged in the business of developing, manufacturing and marketing a broad range of pharmaceutical products from its various manufacturing units, Research and Development Centres and branch offices. The employees are vital resources to carry out the day to day affairs of the Applicant Company. Accordingly, in order to carry out its business of output supply mentioned above, the Applicant is providing canteen facility to its employees. The provision of canteen facility to the employees is a welfare measure, also mandated by the Factories Act and is not at all connected to the functioning of their business of developing, manufacturing and marketing pharmaceutical products. Further, the said activity is not a factor which will take the applicant's business activity forward. 5.3.4 We also find that the applicant is not supplying any canteen service to its employees in the instant case. Further, the said canteen facility services are also not the output service of the applican....
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.... a welfare, security and safety measure and is not at all connected to the functioning of their business. Further, the said activity is not a factor which will take the applicant's business activity forward. 5.4.3 We also find that the applicant is not supplying any bus transportation service to its employees in the instant case. Further, Bus transportation service is also not the output service of the applicant since they are not in the business of providing transport service. Rather, this bus transportation facility is provided to employees by the third party vendors and not by the applicant. Therefore, in the subject case, the applicant is not providing bus transportation facility to its employees, in fact the applicant is a receiver of such services. 5.4.4 We observe that the GST is discharged on the gross value of bills raised on the applicant by the third party vendors. We also observe that the partial amounts recovered by the applicant from its employees in respect of use of such bus transportation facility are a part of the amount paid to the third party vendors which has already suffered GST. 5.4.5 In the case of an application filed by M/s Tata Motors Limited....
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....s providing bus transportation facility. 5.5 Question No. 3: Whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period? 5.5.1 We have considered the applicant's submissions, the relevant facts and interpretation of GST Laws made by the applicant with respect to the question whether the applicant is liable to pay GST on recovery of Notice Pay from the employees who are leaving the Applicant company without completing the notice period as specified in the Employment Letter entered into, by both, the Applicant as well as the concerned employees. 5.5.2 The applicant has submitted that, at the time of appointing any employee, they enter into an Employment Agreement' wherein it is mentioned that, either parties shall serve a certain time period's mandatory notice to terminate the said Agreement. As per the relevant clauses of the Employment Agreement (submitted on a sample basis), the Employee shall have a right to resign by serving prior written notice of 30/90 days applicable to the Employee's grade, as company policy or upon payment of money compensation in lieu of notice period as me....
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....tion of a contract of employment are treatable as amounts paid in relation to services provided by the employee to the employer in the course of the employment. Hence, amounts so paid would be chargeable to Service tax. However any amount paid for not joining a competing business would be liable to be taxed being paid for providing the service of forbearance to act. 4. The said query raised pertains to the opposite situation i.e. where the employer pays the employee for premature termination of service and in this situation it was clarified that premature termination was treatable as amounts paid in relation to services provided by the employer in the course of employment. As regards the present situation where the employee had paid the employer for waiver of notice period, the matter had come up before the Hon'ble Madras High Court in W.P. Nos 35728 to 35734 of 2016 in the case of GE T&D India Ltd Vs Deputy Commr of Central Excise, LTU, Chennai - 2020-VIL-39-MAD-ST. The Hon'ble high court applying the CBEC's clarification observed that "the employer cannot be said to have rendered any service per se much less a taxable service and has merely facilitated the ex....
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....and analysed below. Section 7 of CGST ACT, 2017 : Scope of Supply 1. For the purposes of this Act, the expression "supply" includes - (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; and (c) the activities specified in Schedule I, made or agreed to be made without a consideration; (d) Omitted vide Notification No. 02/2019-CT dated 29.01.19 1 (A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II." (amended retrospective effect from 1.7.2017) 2. Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Governme....
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....are agreeing to the obligation to refrain from an act or tolerate an act or a situation or to do an act, as declared supply of services. The said. clause 5(e) has the following ingredients: - • One party is under obligation, as agreed, to refrain from an act; • One party is under obligation, as agreed, to tolerate an act or situation; • One party is under obligation, as agreed, to do an act; all against consideration The clause 5(e) treats an act of forbearance (refrain) or tolerating an act or situation where one of the parties is under obligation, as agreed upon, to forbear, refrain or tolerate an act or situation, against consideration. Section 2 (31) (b) of CGST Act 2017 defines consideration in relation to supply of goods and services or both and includes the monetary value of any act or forbearance. The word "Service" defined under Section 2(104) of the CGST Act, 2017 means anything other than goods, money and securities. It is pertinent to understand before levy ; (i) whether the receipt or deduction of salary in lieu of notice period by an employee can be said to be consideration for an act of forbea....