Shriram Pistons & Rings Ltd. Vs Commissioner of Central Tax (CESTAT Allahabad)
Summary: The Customs, Excise & Service Tax Appellate Tribunal, Allahabad Regional Bench, considered Service Tax Appeal No. 70444 of 2019 filed by M/s Shriram Pistons & Rings Ltd. against Order-in-Appeal No. GZB/EXCUS/000/APPL-MRT/507/2018-19 dated 12.02.2019 passed by the Commissioner (Appeals), Central Goods & Services Tax, Meerut. Final Order No. 70141/2020 was pronounced on 04.02.2020.
The dispute concerned service tax demanded from the appellant on an amount recovered from an employee when the employee left employment before completion of the fixed contractual term. Under the employment arrangement described in the order, the employee was paid salary for a fixed term and, if the employee left before expiry of that term, the appellant recovered a certain amount already paid as salary from the employee.
The Revenue treated the amount recovered by the employer as consideration for a taxable service and raised a service tax demand on that basis.
The Tribunal noted that the recovery represented an amount out of salary that had already been paid to the employee. It further observed that salary was not covered by the provisions of service tax.
The Tribunal also noted that the issue stood decided by the Madras High Court in GE T & D India Limited Vs Deputy Commissioner of Central Excise, 2020 (1) TMI 1096 (Mad.). The Madras High Court decision concerned the taxability of notice-pay recovery and was referred to by the Tribunal in support of its conclusion.
On the basis that the disputed recovery was out of salary already paid and salary was outside the service tax levy, the Tribunal held that the Revenue’s treatment of the recovery as consideration for a taxable service could not be sustained.
The Tribunal accordingly set aside the impugned order and allowed the appeal.
Cases Discussed
- GE T & D India Limited Vs Deputy Commissioner of Central Excise, 2020 (1) TMI 1096 (Mad.) — referred to as the Madras High Court decision which had decided the issue concerning notice-pay recovery and service tax.
FULL TEXT OF THE CESTAT ALLAHABAD ORDER
After hearing both the sides duly represented by learned advocate Ms. Anshika Agarwal appearing for the appellant and Shri B. K. Jain appearing for the Revenue, we note that in the present case the employer has been served with a show cause notice demanding service tax from that part of the amount which he recovers out of the salary paid to the employee if the employee breaches the contract of total term of employment. From the record, we note that the term of contract between the appellant and his employee are that employee shall be paid salary and the term of employment is a fixed term and if the employee leaves the job before the term is over then certain amount already paid as salary is recovered by the appellant from his employee. This part of the recovery is treated by Revenue as consideration for charging service tax.
2. We hold that the said recovery is out of the salary already paid and we also note that salary is not covered by the provisions of service tax. The issue also stands decided by the Hon’ble Madras High Court in the case of GE T & D India Ltd. (Formerly ALSTOM T & D India Ltd.) vs. Deputy Commissioner of Central Excise 2020 (1) TMI 1096 (Mad.). Therefore, we set aside the impugned order and allow the appeal.
(Dictated and pronounced in open court)
