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2021 (1) TMI 431 - AAR - GST100% EOU - Levy of GST - recovery of Notice Pay from the employees who are leaving the company without completing the notice period - Service of notice for termination of contract - three months’ notice mandatory for all employees/employer - as per contract, the company is entitled to recover the notice pay from the agreed portion of salary to compensate the loss to company, if notice not served correctly - HELD THAT:- Employees who resign from their job are expected to serve notice period as mentioned in the appointment letter i.e. three months. If the employee does not serve such notice period, the salary of the unserved portion of notice period is retained by the employer, which is called as “Notice Pay Recovery” - the said Notice Pay is nothing but the amount stipulated in the employment contract for breach in serving (not serving) the stipulated notice period. In other words, notice pay is a sum mutually agreed between the employer and the employee for breach of contract. It can be regarded as a consideration to the employer for “tolerating the act” of the employee to not serve the notice period, which was the employee’s agreed contractual obligation. 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 employee while 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. Thus, the applicant is liable to pay GST @ 18% under the entry of “services not elsewhere classified, 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 contract entered between them.
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