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2022 (3) TMI 1143 - AAAR - GSTLevy of GST - 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 Employer and the Employee - applicability of Section 101 (3) of CGST Act, 2017 - difference of opinion. Findings as per Seema Arora: HELD THAT:- Schedule III of the GST Acts covers various activities or transactions, which shall be treated neither as a supply of goods nor a supply of services. Para 1 of the said Schedule III covers ‘services by an employee to the employer in the course of or in relation to his employment’. However, the present case is not covered by the said Para 1 of Schedule III inasmuch as the service of tolerating of the act of breach of the contract is on the part of the employer. Neither the employee is providing the service, nor it is in the course of or in relation to his employment - the said service by way of tolerating non-performance or breach of contract for which consideration in the form of liquidated damages is payable to the appellant is neither exempted under Notification nor covered under para 1 of Schedule III of the GST Acts. The appellant M/s. Amneal Pharmaceuticals Private Limited is liable to pay Goods and Services Tax at applicable rate on the amount of notice pay (liquidated damages) received from the employees leaving the job of the appellant without completing the notice period as specified in the contract entered into (Appointment Letter) between the appellant and its employees, and reject the appeal filed by M/s. Amneal Pharmaceuticals Private Limited. Findings as per Milind Torawane: HELD THAT:- Transaction or activity is not in the course and furtherance of business: As stated above, the contract of employment between the employer and an employee, where the employee promises to provide employment services to an employer in return for a consideration (i.e. “salary”) is the transaction in the course and furtherance of business. The employee at his own choice decides to serve during the period of notice pay or not to serve during the said period along with compensating the damages for injury caused by him to the employer. There is no discretion on the part of the employer i.e. so called service provider. No benefit is accrued to the employer from the sudden exit of the employee - the act of notice pay recovery is only an extinguishment of the obligation of the employee which does not constitute an independent/voluntary activity by the employer. As per sub-clause (iii) of clause (a) in the explanation to section 15 of the Act, employer and employee are deemed to be considered as related persons. Therefore, supply of goods or services between employer and employee, when made in the course or furtherance of business, may be considered as supply - In the instant case, though employer and employee are deemed to be considered as related persons, there is no supply of either goods or services. In addition, as the act is not made in the course or furtherance of business, it is not covered under Schedule I of the Act. The appellant, in the given case, does not provide any service in the form of “tolerance of an act” but facilitates the employee for sudden exit from the employment services. The termination clause of the “Appointment Letter” provides simply cessation of employment services and to compensate loss to either of the parties due to sudden termination. The appellant and its employee enter into contract to receive and supply employment services and not to tolerate an act of each other - the termination of the employment services does not result in supply of any other service. Therefore, the transaction of the appellant in the form of notice pay recovery does not fall within the scope of “supply” as provided in section 7 of the GST Acts, and where the activity or transaction does not amount to supply, the amount received by the employer has no relevance for levying tax under the GST Acts. The appellant is not liable to pay Goods and Services Tax on recovery of notice pay from employees who leave the company without completing the notice period as specified in the Appointment Letter issued as per the contract entered between employer and employees. Also, as the members of appellate authority are differing, Section 101 (3) of CGST Act, 2017 shall apply.
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