A recent advance ruling from Gujarat Authority under the Goods and Services Tax Law has stunned the employees leaving service without completing their full notice period.

According to Gujarat Authority of Advance Ruling in the matter of M/s Amneal Pharmaceuticals Pvt. Ltd. [Advance Ruling No. GUJ/GAAR/R/51/2020, dated July 30, 2020] , the employee leaving the company without completing the notice period will have to pay salary for the remaining period along with 18% of GST.

While hearing the case, the Authority held that notice pay is a sum mutually agreed between the employer and the employee for breach of the contract. It can be regarded as a consideration to the employer for “tolerating the act” of the employee of not serving the notice period, which was the employee’s agreed contractual obligation.

Section 7(1) of the CGST Act, 2017, includes activities referred to in Schedule II in the scope of supply. Clause 5(e) to Schedule II to CGST Act 2017, declares that ‘agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act‘ shall be treated as supply of service. The condition to pay an amount as notice pay in lieu of notice period, for the employer to agree to let go an employee, normally forms part of the terms and conditions of employment.

Furthermore, the employee has understood and accepted the condition that in the contingency of his inability to provide the prescribed notice period, he can exercise the option of paying the notice pay as the consideration for the employer to agree to the obligation of letting him go, which the employer is bound to do as it is part of the terms and conditions already agreed to and settled between them.

This transaction of the employer agreeing to the obligation of tolerating an act (quitting without any advance notice) on the part of the employee, for payment of a sum (notice pay), will be covered under Clause 5(e) to Schedule II to CGST Act 2017, as a declared service.

The authority concluded that the outgoing employee will either have to serve the notice period mentioned in the appointment letter or will have to pay an additional 18 percent GST along with the notice pay amount to the company for the remaining period.


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  1. Sujit Kumar Das says:

    Very nice article. Advance Ruling does not consider the Employee and Employer relationship. That’s the beaty of the “Bureaucracy”.

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April 2021