No GST Payable on notice pay recoveries made from employees

No GST Payable on notice pay recoveries made from employees on account of not serving full notice period Levy under CGST Act, 2017 is on "supply" of goods or services or both. The word "such as" used preceding the words sale, transfer, barter, exchange, etc. indicates that the forms of supply shall be those which are enumerated therein or of similar character but not of other dissimilar forms of supply. The expression "such as" indicates the character of the transactions. Furthermore, the CGST (Amendment) Act, 2018 introduced subsection (1A) to Section 7 of the CGST Act, 2017 with retrospective effect 01-07-2017 in place of Section 7 (1)(d), which seeks to levy tax on certain declared "supply" of goods or services referred to in Schedule II of the CGST Act, 2017. As per Section 7 (1A), where certain activities or transactions, constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as the supply of goods or supply of services as referred to in Schedule II wherein it has been prescribed that, a particular activity shall be treated either as the supply of goods or as the supply of services. However, Schedule II comes into play only if an activity qualifies as supply under Sec 7 of the CGST Act. Services by an employee to the employer in the course of or in relation to his employment are activities or transactions which shall be treated as neither supply of goods nor supply of services under Schedule III of Section 7 of CGST Act 2017. The employee opting to resign by paying an amount equivalent to a month of salary in lieu of notice has acted in accordance with the contract and that being the case no question of any forbearance or tolerance does arise. Further, as per the agreement, the resignation by the employee is not subject to any acceptance or approval and the employee is free to tender his resignation, make payment of notice period salary to leave. Hence, there is neither any activity nor any passive role played by the employer. It must be noted here, that there is no consideration within the meaning of Sec.2(31)(b) of the CGST Act, 2017 flowing from an act of forbearance in as much as there is no breach of contract, as a question of any consideration for forbearance would arise in case of breach of contract. So, recovery of notice pay from dues of employee/payment of notice pay by the employee who could not serve the notice for the period as per contractual agreement/appointment letter does not amount to supply under CGST Act 2017, the provisions of Schedule II does not come into play.