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Case Law Details

Case Name : Kellogg India Pvt. Ltd Vs Commissioner of CGST & CE (CESTAT Mumbai)
Appeal Number : Service Tax Appeal No. 87665 of 2022
Date of Judgement/Order : 16/06/2023
Related Assessment Year :
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Kellogg India Pvt. Ltd Vs Commissioner of CGST & CE (CESTAT Mumbai)

Introduction: In a landmark ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Mumbai has annulled a service tax demand against Kellogg India Pvt. Ltd. The Tribunal confirmed that salary, including notice pay recovery, falls outside the purview of service tax. The dispute arose when the tax authorities treated recovered amounts from employees leaving without the stipulated notice as a “declared service” subject to service tax.

Analysis: The case revolved around an agreement between Kellogg India and its employees, stating that if an employee leaves without giving the agreed three-month notice, the company would deduct an amount equivalent to the incomplete notice period from the unpaid salary or other dues. Revenue authorities viewed this as a declared service and demanded service tax on the amounts not paid to departing employees.

Kellogg India argued that the unpaid salary accounted for in their books as “notice pay recovery” was not a service consideration but part of the total salary compensation. As salary is not subject to service tax, the company contended that the unpaid portion shouldn’t be either.

The Tribunal ruled in favour of Kellogg India, affirming that the company hadn’t received any service consideration, and thus, service tax did not apply. The Tribunal noted that the disputed amount was, in fact, unpaid salary, which falls outside the service tax ambit. The ruling also referred to a precedent case (HCL Learning Ltd. vs Commissioner of Central Goods and Service Tax, Noida) in reaching its conclusion.

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