No service tax payable on amount of notice pay recovered from employer in lieu of sudden termination of employees

Last updated: 17 February 2022

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The CESTAT Delhi has ruled that no service tax is payable on notice pay recovered from employees who resign prematurely without providing the required notice. The tribunal determined that such payments are compensation for a breach of contract, not consideration for a service rendered. Therefore, these amounts do not fall under the definition of 'declared services' for service tax purposes.

Court :
CESTAT, Delhi

Brief :
The CESTAT, Delhi in M/s Rajasthan Rajya VidhyutPrasaran Nigam Ltd. v. Commissioner of CGST, Customs [Service Tax Appeal No. 53020 of 2018 dated January 01, 2022] set aside the order passed by the Revenue Department confirming demand of service tax on the notice pay recovered by the assessee from its employees for premature resignation. Held that, no service tax is payable on notice pay in lieu of sudden termination, as it does not give rise to the rendition of service either by the employer or the employee, and compensation for failure under a contract cannot be consideration for service. Further held that such contract cannot be termed as declared service.

Citation :
Service Tax Appeal No. 53020 of 2018 dated January 01, 2022

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