Balaji Medical & Diagnostic Research Centre Vs Principal Commissioner (CESTAT Delhi)
Summary: CESTAT Delhi allowed the appeal of Balaji Medical & Diagnostic Research Centre and set aside the Service Tax demand of Rs. 6,29,329/- confirmed on notice pay recovered from employees who prematurely terminated their employment. Two show cause notices had raised demands on revenue share deducted from consulting doctors’ fees and on notice pay recoveries. While the adjudicating authority dropped the major demand of Rs. 4,59,47,462/- relating to the revenue-sharing arrangement, it confirmed Rs. 6,29,329/- comprising Rs. 3,38,472/- for 2010-11 to 2014-15 and Rs. 2,90,857/- for 2015-16 in respect of notice pay.
The Tribunal found that the surviving issue was already settled by Rajasthan Rajya Vidhyut Prasaran Nigam Ltd., which explained that an employment contract is entered into for employment and performance of duties, not for premature resignation or termination. Notice-period compensation incorporated in the employment contract therefore does not become consideration for a service merely because it is contractually stipulated. The Tribunal also relied upon GE T&D India Ltd., where the Madras High Court held that notice pay in lieu of sudden termination does not result in rendition of service either by the employer or employee.
That principle had also been followed in Intas Pharmaceuticals, State Street Syntel Services Pvt. Ltd., Shriram Pistons & Rings Ltd. and HCL Learning Ltd. Finding the issue identical and seeing no reason to depart from those rulings, CESTAT held that the notice-pay demand could not survive, set aside the impugned order and allowed the appeal.
