Cosmo First Limited Vs Commissioner of C.E. & S.T. (CESTAT Ahmedabad)
Summary: CESTAT Ahmedabad allowed the appeal of Cosmo First Limited and set aside the service tax demand of Rs.77,791/- on notice pay recovered from employees who left employment without serving the stipulated notice period. The dispute covered July 2012 to March 2017.
The Department treated notice pay as consideration for the declared service of agreeing to refrain from an act, tolerate an act or situation, or do an act under Section 66E(e) of the Finance Act, 1994. The Assistant Commissioner confirmed the demand with interest and penalties, and the Commissioner (Appeals) upheld that decision.
The appellant contended that notice pay arose from the terms of employment and did not represent consideration for any service rendered by the employer. It relied upon the CBEC Education Guide dated 28.06.2012, Circular No. 178/10/2022-GST dated 03.08.2022, Circular No. 214/1/2023-Service Tax dated 28.02.2023 and judicial precedents including GE T & D India Ltd. and Linde Engineering India Pvt Ltd. The Tribunal followed the reasoning that consideration is received for successful performance of a contract, whereas compensation arises from failure or non-performance and does not become consideration merely because the quantum is pre-agreed in the contract.
