mhc advt Joshop Prabakar: Service Tax liability on Notice Pay. Petitioner received certain amounts in lieu of notice period from outgoing employees.

[1/30, 08:09] sekarreporter1: [1/30, 08:06] mhc advt Joshop Prabakar: Service Tax liability on Notice Pay. Petitioner received certain amounts in lieu of notice
period from outgoing employees.
Revenue was of the view that this amount would attract
service tax as the petitioner has tolerated the act of immediate quitting from service, by
the employees and such agreement/toleration results in the rendition of a taxable service
HELD – the employer
cannot be said to have rendered any service per se much less a taxable service and has
merely facilitated the exit of the employee upon imposition of a cost upon him for the
sudden exit. The employer has not ‘tolerated’ any act of the employee but has permitted a sudden exit
upon being compensated by the employee in this regard. A contract of employment qua
an employer and employee has to be read as a whole and there are situations within a
contract that constitute rendition of service such as breach of a stipulation of non-
compete.
Notice pay, in lieu of sudden termination however, does not give rise to the
rendition of service either by the employer or by the employee.
On this basis, the Court held that Service Tax is not chargeable on recept of Notice Pay by an employer.
Madras High Court is the first Court to render a decision on this issue. The verdict has put an end to the long drawn controversy on this point across India.
This decision would have significant implications in the current GST regime as well.
[1/30, 08:08] sekarreporter1: 👍👍
[1/30, 08:09] Joshop Prabakar: 👍🙏👍👍

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