TaxTMI 
TaxTMI 
2024 (7) TMI 520
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.... as the CGST Act and KGST/SGST Act respectively). The applicant is engaged in the business of software development and maintenance services and Information technology enabled services. 3. The applicant has sought advance ruling in respect of the following questions:- i. The Company recovers joining bonus and retention bonus on account of employee's inability to serve the organization (or a particular department, in case of retention bonus) for a pre-agreed period. The applicant wishes to seek clarity whether GST would be applicable on recovery of such bonus? ii. Whether GST would be applicable on recovery of work from home one-time setup allowance paid to employees in case where the employees exit before serving the pre-defined period from the payout date? iii. Whether GST would be applicable on recovery of amount paid as financial assistance to employees under Tuition Assistance Program (TAP) policy in case where the employee exit before serving the pre-agreed period in the organization? 4. Admissibility of the application: The question is about the "determination of the liability to pay tax on any goods or service or both" and is admissible....
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....e applicant states that due to outbreak of COVID-19 pandemic, the employees of the Company were instructed to undertake work from home in lines with the various guidelines issued by the Government from time to time. In order to enable employees to undertake work effectively and efficiently, a one-time work from home set up allowance amounting to INR 22,000/- was provided to employees by the applicant. The said amount is given as a one-time allowance which is payable only once during the entire tenure of the employee in the Company. b. The applicant states that a one-time amount of INR 22,000/- is paid uniformly to all employees along with their salary of a particular month for expenses incurred on setting up home office infrastructure. The said allowance is disbursed subject to a condition which demands serving of pre-defined period from the date of payout in the organization. In case where the employee wishes to exit before serving the stipulated period, the amount so paid as one-time setup allowance stands recoverable by the applicant. 5.5. Tuition Assistance Program ('TAP'),- a. The applicant states that to upskill their employees, provides financial assis....
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.... said that the fundamental premise of 'activity for a consideration' itself is not satisfied and thus, the recovery of bonus/ allowance shall not be leviable to service tax. iii. Para 2.3.1 of education guide provides:- "2.3.1 Would imposition of a fine or a penalty for violation of a provision of law be a consideration for the activity of breaking the law making such activity a 'service'? No. To be a service an activity has to be carried out for a consideration. Therefore, fines and penalties which are legal consequences of a person's actions are not in the nature of consideration for an activity." Thus, it can be inferred that recovery of bonus/ allowance which is compensatory in nature (accrues on employee deciding not to serve the pre-agreed time period) cannot be construed as consideration for an activity. a. Moreover, the education guide clarified many queries with respect to employer-employee transactions. In para 2.9.3 of the education guide, following was clarified:- "2.9.3 Would amounts received by an employee from the employer on premature termination of contract of employment be chargeable to service tax? No.....
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....e the activity qualifies as 'supply' under GST, reference may be made to Schedule II of CGST Act, 2017 to classify such activity as supply of goods or service. vii. Given the above, at first, it is crucial to analyze whether the recovery made on account of bonus/ allowance tantamount to 'supply' under GST. In case where the said recovery falls under the ambit of 'supply', it shall then be deliberated whether the same qualifies as 'toleration of an act or situation' in terms of clause 5 (e) of Schedule II. viii. At this juncture, the applicant would like to submit that co-existence of 'activity' and 'consideration' and the reciprocal relationship between the employer and employee is necessary to treat an event as supply under Section 7 of CGST Act, 2017. Each and every cash flow need not be construed as a consideration. ix. In the given scenario, the applicant has merely exercised his contractual right arising out of the original employment contract, without carrying out any activity per se at his end as any reciprocal gesture, which would have entitled him to receive the said amount from employee. Thus, it would certainly not....
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....ses as a condition of non-serving of the pre-defined period is not an independent contract in itself to qualify as a supply. xv. Therefore, it can be said that once bonus/ allowance recovery is stipulated in the employment documents, the employer can only sue for recovery of such amount but cannot enforce mandatory serving of the pre-agreed period. Since the employer cannot enforce mandatory serving of the stipulated period, the employer cannot be said to have refrained from an act of suing the employee for mandatory serving against the bonus/ allowance recovery. Thus, bonus/ allowance recovered cannot be said to be consideration against agreeing to the obligation to refrain from an act or to tolerate an act. xvi. The applicant incurs expenses in form of retention/ joining bonus, WFH allowance and TAP benefits in order to incentivize the employees and inculcate technical skills. Where the employee opts to leave the organization, the bonus/ allowance recovered is in order to compensate the employer for the inconvenience caused due to early exit of the employee (since the employer had deployed its resources to motivate and professionally train the employees so that they can con....
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....is would include activities such a shopkeeper allowing a hawker to operate from the common pavement in front of his shop against a monthly payment by the hawker 3) Agreeing to the obligation to do an act - This would include the case where an industrial unit agrees to install equipment for zero emission/ discharge at the behest of the RWA of a neighboring residential complex against a consideration paid by such RWA, even though the emission/discharge from the industrial unit was within permissible limits and there was no legal obligation upon the individual unit to do so. a. Further, the relevant paragraphs from the Circular examining the scope of entry 5 (e) of Schedule II are hereby provided below for reference:- "6. This goes to show that the service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something and the other agrees to pay consideration to the first party ....
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....m an act, or to tolerate an act or a situation or to do an act and some 'consideration' must flow in return from the other party to the first party for such refraining or tolerating or doing of an act. • There must be a necessary and sufficient nexus between the supply (i.e., agreement to do or to abstain from doing something) and the consideration. • Such contractual arrangement must be an independent arrangement in its own right. Moreover, said agreement can be under a separate standalone contract or it may form part of another contract. Para 7.5 specifically clarifies GST implication in case of forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period. The relevant extract of the circular is reproduced below:- "Forfeiture of salary or payment of bond amount in the event of the employee leaving the employment before the minimum agreed period 7.5 An employer carries out an elaborate selection process and incurs expenditure in recruiting an employee, invests in his training and makes him a part of the organization, privy to its processes and business secr....
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.... the recovery of bonus/ allowance is not chargeable to GST. 6.3 The applicant has also relied on the Advance rulings under GST:- i. The Haryana Authority for Advance Ruling (HAAR) in the matter of 'M/S. RITES LIMITED' wherein reliance has been placed on the Circular No. 178 dated 03 August 2022 issued by CBIC and held that notice pay recovery and bond Forfeiture of the contractual employees is outside the scope of ' supply' and thus, not Chargeable to GST. ii. The Authority for Advance Ruling Maharashtra in the matter of 'Emcure Pharmaceuticals Limited' relied upon the ruling pronounced by the Madhya Pradesh Appellate Authority for Advance Ruling. iii. Further, the Authority for Advance Ruling, Maharashtra in the matter of 'M/S. SYNGENTA INDIA LIMITED', held that GST shall not be leviable on notice pay Recoveries made from employee for not serving the complete notice period. 6.4 In light of aforesaid deliberations and discussions, the applicant is of the view that bonus/ allowance recovery shall not be leviable to GST on account of following key aspects:- a) There is no explicit contractual agreement between ....
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....purview of GST. In this regard, where recovery is made from such bonus / allowance already paid, the same cannot be leviable to GST. 6.5 Thus, the applicant is of the view that GST shall not be leviable in case where the following recoveries are made from employees:- 1) Joining / retention bonus where employee leaves the organization (or department in case of retention bonus) without serving the pre-agreed period. 2) Work from home one time set up in case where the employees exit before serving the pre-defined period from the payout date. 3) Amount paid as financial assistance to employees under TAP policy in case where the employee exits before serving the pre-agreed period in the organization. PERSONAL HEARING / PROCEEDINGS HELD ON 13.07.2023 7. Ms. Smritikona Dutta, Duly Authorised Representative appeared for personal hearing proceedings held on 13.07.2023 and reiterated the facts narrated in their application. FINDINGS & DISCUSSION 8. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matter and differ from each other only on ....
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....f joining ('DOJ'), such joining bonus is recovered from the employee. c) Work from home ('WFH') allowance: The applicant states that to enable employees to undertake work effectively and efficiently at home, a one-time work from home set up allowance amounting to INR 22,000/- was provided to employees by the applicant. The said allowance is disbursed subject to a condition which demands serving of pre-defined period from the date of payout in the organization. In case where the employee wishes to exit before serving the stipulated period, the amount so paid as one-time setup allowance is recovered by the applicant. d) Tuition Assistance Program ('TAP') : The applicant states that the eligible employees are allowed to pursue further education in the form of graduate/ post graduate degree/ diploma or specific certificate courses through TAP. The applicant shall reimburse INR 50,000/- in a year either in full or in part. The course so selected by the employee should be relevant to the employee's existing job role or towards the approved company assignments that he/ she may be required to undertake in future. The amount is expensed....
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....h bonus/allowance. The intention behind such bonus/allowance is to incentivize and motivate the employee to remain in the organization. Thus, the recovery of bonus/allowance by the applicant is in same lines with that of the forfeiture of salary or recovery of bond amount in the event of the employee leaving the employment before the minimum agreed period which is not taxable under GST as per para 7.5 of Circular No. 178/10/2022-GST dated 03.08.2022 mentioned supra in para 12.1. 14. Taxability on Perquisites provided by employer to the employees as per contractual agreement is discussed in SI. No.5 of Circular No. 172/04/2022-GST dated 06.07.2022 and the same is reproduced below: S.No. Issue Clarification 5 Whether various perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are liable for GST? 1. Schedule III to the CGST Act provides that "services by employee to the employer in the course of or in relation to his employment" will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided th....