This is one subject which has not reached to competent courts to pass a conclusive judgment. However experts divided between for (interpretation of law in favour of recovery of GST) and against. The query of such nature was discussed in this link here-
A) Interpretation towards applicability of GST on buy out NP:
"As per Schedule III of the Central GST Act, 2017, services by an employee to the employer in the course of or in relation to his employment will not be treated as supply of goods or services. Thus, the salaries and other allowances that are paid by the employer to the employee, as part of the employment contract are outside the purview of GST.
The employer and the employees are deemed to be ‘related persons’, in terms of Section 15(5) of the CGST Act. As per Entry No.2 of the Schedule I to the CGST Act, supply of goods or services or both between related persons when made in the course or furtherance of business would be subject to levy of tax under GST.
In case of notice pay recovered by employer this would be subject to levy of tax under GST, as this is a supply of service effected by the employer to the employee and the employer would be liable to pay tax under GST. This is actually supply of service of “tolerating an act or situation provided by employer to employee”. This issue is being litigated under the previous service tax regime, as well.
Supply of services-para 5(e) of Schedule II of CGST Act, read with section 7(1)(d) of CGST Act.
This should cover under GST under the following concepts-
• Non-compete fees payable for agreeing not to compete for particular period.
• Forfeiture of deposit or advance as penalty.
• Penalty for breach of contract.
Thus, in respect of notice pay being recovered by the employer company, GST Payable.
B) A view opposing the applicability of GST on buy-out is attached for your reference.
These opinions at A & B above, of course cannot be conclusive as these are not judgments. Neither we could pass a judgment on your query. As an assessee, here an employer, has to shoulder responsibility to pay tax failing which subjected to penalty with interest. That's why they are not taking any chance. It's left to you to take up the fight hereonwards.
From India, Bangalore
ArjunbhagwatCan you further guide me on GST on service bond amount. As per the agreement there is nothing written about any charging of extra taxes on Service bond amount.
From India, Kolkata
An employer, being an assessee for taxation like Prof.Tax, TDS, IT, GST etc., are duty bound to deduct or collect appropriate taxes & levies whether or not any contract or agreement lays down such a condition. It's possible as you said, your 'Service Bond agreement' didn't contain a clause to the effect GST will be charged on the 'buy out' notice period. That doesn't stop your employer from recovering the GST from you, this being a statutory levy applicable on such instances they do have an authority to collect govt.levies. Failing to do so might land them bearing the levy on themselves or pay to govt. first and collect it from you later situation. Presence or absence of a clause in the agreement can have no bearing on charging GST.
The other case, about your colleague from whom no GST was charged might have been 'a miss' on the part of admin, I presume.
From India, Bangalore