Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. Vs Commissioner of Central Goods and Services Tax (CESTAT Delhi)
No service tax payable on amount of notice pay recovered from employer in lieu of sudden termination of employees
The CESTAT, Delhi in M/s Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. v. Commissioner of CGST, Customs [Service Tax Appeal No. 53020 of 2018 dated January 14, 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.
Facts:
M/s Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. (“the Appellant” / “the Employer”) is a public sector undertaking of the Government of Rajasthan and engaged in transmission of electricity. An audit took place by the Service Tax Department, and it was found that the Appellant did not discharge service tax of INR 28,10,698/- for the amount recovered from its employees on their premature resignation i.e. without giving the requisite notice period.
Thereafter, a Show Cause Notice (“SCN”) dated July 07, 2016 was issued demanding service tax amounting to INR 3,55,472 along with interest under Section 75 the Finance Act, 1994 (“the Finance Act”) and imposing penalty under Section 78 of the Finance Act.
Subsequently, the Assistant Commissioner passed Order in Original dated December 14, 2016 confirming the demand of service tax along with interest and penalty, which was further upheld vide Order-in-Appeal dated June 19, 2018 (“the Impugned Order”), by the Commissioner (Appeals) (“the Respondent”) and hence the Appellant has filed this petition.
The Respondent contended that, the Appellant had an agreement to tolerate a situation i.e. employees resignation without the requisite notice period in return for a consideration and therefore, the amounts received or recovered from its employees is exigible to service tax under Section 66E(e) of the Finance Act and such liquidated damages as a penalty for resigning without notice period is built into the employment contract.
Issue:
Whether the amounts received or recovered by the Employer from its employees for resigning from the service without giving the requisite notice is exigible to service tax?
Held:
The CESTAT, Delhi in Service Tax Appeal No. 53020 of 2018 dated January 01, 2022 held as under:
