The issue revolves around the service tax levied on amounts ...

Compensation for Early Job Termination Not Taxable as Service, Tribunal Rules; Employer Not Rendering Service.

November 29, 2024

Case Laws     Service Tax     AT

The issue revolves around the service tax levied on amounts received by an employee from the employer upon premature termination of the employment contract. The Tribunal held that the employer cannot be considered as rendering a taxable service by merely facilitating the employee's exit upon compensation for the sudden termination. The definition of service u/s 66E is not attracted as the employer has not 'tolerated' any act of the employee but has permitted a sudden exit upon being compensated. While a contract of employment is typically read as a whole, certain situations like breach of a non-compete clause may constitute rendering of service. However, notice pay in lieu of sudden termination does not give rise to the rendition of service by either the employer or the employee. Consequently, the jurisdictional Commissioner of Service Tax's appeal was dismissed as lacking merit.

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