Service Tax not applicable on Consideration received by employer for resigning from service without giving requisite notice

In matter of M/s Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. vs Commissioner of Central Goods and Services Tax, Customs and Central Excise, the Customs, Excise & Service Tax Appellate Tribunal held that Service Tax not applicable on Consideration received by employer for resigning from service without giving requisite notice. The Tribunal followed the law laid down by Madras High Court in GE T&D that Notice pay, in lieu of termination, however, does not give rise to the rendition of service either by the employer or the employee.

The impugned order upholding confirmation of a demand of service tax on the notice pay received/recovered by the appellant from its employees for premature resignation cannot be sustained and needs to be set aside.

Is GST Applicable on Notice Pay Recoveries made from the employees?

Learned Departmental Representative submitted that the clarification by the CBEC was clear and it was held that the termination pay received by the employee is not exigible to tax because in such as case, it is the employee who is the service provider and the service provided by him in the course of employment is excluded from the definition of service. However, where the employer recovers any amount, the service provider will be the employer and his services are not excluded from the definition of service. Therefore, a distinction needs to be made on this count. However, on a specific query from the bench, he fairly submits that there are no case laws to support this argument nor is there any case law contrary to the judgment of the Madras High Court in the GE T&D.