No Service Tax on notice pay recovery by employer from employee: CESTAT

Case Details: Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. v. Commissioner of Central Goods and Services Tax, Customs and Central Excise, Jodhpur - [2022] 135 taxmann.com 6 (New Delhi - CESTAT)

Judiciary and Counsel Details

• • Dilip Gupta, President and P.V. Subba Rao, Technical Member
  • Narandra Singhvi and Ms. Priyamvadi Joshi, Advs. for the Appellant. 
  • Nanendra Yadav, AR for the Respondent.

Facts of the Case

The appellant was a public sector undertaking of the Government of Rajasthan and engaged in transmission of electricity. Its records were audited by the Service Tax Department and it was found that the appellant has not discharged service tax on amount recovered from its employees on their premature resignation, i.e., without giving the requisite notice period. The demand was confirmed and the Commissioner (Appeals) upheld the order in original. Hence, the appellant filed this appeal.

CESTAT Held

The Honorable CESTAT observed that notice period and compensation are incorporated in employment contract but they are not the purpose of contract. A notice period on both sides is provided for so that the other party can make arrangements. Compensation is a fall back option if one of the parties frustrates the contract but compensation paid for failure to fulfill conditions under a contract is not consideration for service under the contract. In the instant case, notice pay did not give rise to rendition of service either by employer or employee. Following the law laid down by Madras High Court in GE T&D India Ltd. v. Dy. CCE [2020] 119 taxmann.com 55, it was held that service tax not exigible on amount received by employer from employee for not serving notice period.

Case Review

• • GE T&D India Ltd., v. Dy. CCE [2020] 119 taxmann.com 55 (Mad.) (paras 17 and 19) followed.

List of Cases Referred to

• • Commission of Service Tax v. Repco Home Finance Ltd. [2020] 117 taxmann.com 755 (Chennai – LB) (para 14)
  • South Eastern Coalfields Ltd. v. CCE & ST [ST Appeal No. 50567 of 2019, dated 22-12-2020] (para 14)
  • MNH Shakti Ltd. v. Commission of Central Goods & Services Tax & Central Excise [2021] 132 taxmann.com 115 (Kol. – CESTAT) (para 14)
  • Ruchi Soya Industres Ltd. v. CC, CG & ST & CE [2021] 129 taxmann.com 368 (New Delhi – CESTAT), (para 14)
  • GE T&D India Ltd. v. Dy. CCE [2020] 119 taxmann.com 55 (Mad.) (para 17)
  • CST v. Intas Pharmaceuticals [ST Appeal No. 12436 of 2008-DB, dated 25-6-2021] (para 17)
  • State Street Syntel Services (P.) Ltd. v. Commissioners of CGST [ST Appeal No. 8975 of 2018, dated 25-11-2020] (para 17)
  • Shri Ram Pistons and Rings Ltd. v. CCT [2021] 126 taxmann.com 183 (All. – CESTAT) (para 17)