Page 21 - GSTL_16 April 2020_Vol 35_Part 3

SERVICE TAX ON NOTICE PAY RECOVERY
— RECENT JUDGMENTS
By
CA Krishan Kumar Sharma, ACA, B.Com.

Recently, Hon’ble Madras High Court in case of
GE T & D India Limited (W.P. Nos. 35728 to 35734 of 2016
and W.M.P. Nos. 30704 to 30710 of 2016) [2020 (35)
G.S.T.L. 89 (Mad.)] has passed an order in the matter of
applicability of Service Tax on Notice Pay Recovery.
Brief facts of the case
Terms of employment of the assessee company include a stipulation for
a notice period prior to quitting from employment, ranging from two to three
months. An option is provided to the employees to the effect that if they are not
in a position to stay and serve out the notice period, then in lieu of the same, the
employee will be required to pay the equivalent pay of salary for the period for
which notice was not served. Accordingly, during the impugned period, assessee
Company had received certain amount in lieu of non-serving of notice period
(Notice Pay Recovery) from outgoing employees.
Assessing Officer was of the view that the amount received in lieu of
non-serving of notice period from outgoing employees would attract Service Tax
since the petitioner is deemed to have facilitated the termination of employment
and thus a category of service is described as ‘facilitation of termination of em-
ployment’ by the Assessing Officer.
Department’s argument
According to the Revenue, the arrangement of allowing termination of
employment without serving notice period would attract the provisions of Sec-
tion 66E(e) of Finance Act, 1994 i.e. declared service (agreeing to the obligation to
refrain from an act, or to tolerate an act or a situation, or to do an act) whereby agree-
ment by assessee company to the obligation to refrain from an act or to tolerate
an act or a situation, or to do not act, would constitute taxable service. Accord-
ingly, the assessee company has tolerated the act of immediate quitting by the

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