Is My Former Employer Wrongly Charging GST on My Service Bond and Notice Pay? Seeking Advice

I had resigned from a PSU where I had signed a bond of Rs 3 lakh. For this, I was required to deposit the remaining bond amount (after deduction from my salary) and one month's notice pay. I agreed to pay the same and requested them to confirm the amount. While calculating the remaining bond amount and notice pay, they charged GST extra in addition to the above two amounts. I have read the service bond agreement and offer letter. As per these two documents, I was only required to pay the remaining bond amount and one month's notice pay. Furthermore, one of my friends who joined the same company with me and was posted in the same area had resigned 4 months ago, but no GST was charged in his case. Since I want to sort out this matter, I have positively responded to their letters. Kindly provide guidance on what necessary action should be taken from my side.

Hi Arjun, this is one subject that has not reached competent courts for a conclusive judgment. However, experts are divided between those in favor of the interpretation of law for the recovery of GST and those against it. The query of such nature was discussed in this link here: https://www.citehr.com/598363-18-gst...ry-amount.html

Interpretation towards applicability of GST on buyout notice period:

"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 a supply of goods or services. Thus, the salaries and other allowances 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 Schedule I to the CGST Act, the supply of goods or services or both between related persons when made in the course or furtherance of business would be subject to the levy of tax under GST. In the case of notice pay recovered by the employer, this would be subject to the 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 a supply of service of ‘tolerating an act or situation provided by the employer to the employee’. This issue is being litigated under the previous service tax regime, as well. Supply of services—para 5(e) of Schedule II of the CGST Act, read with section 7(1)(d) of the CGST Act.

This should cover under GST under the following concepts:
- Non-compete fees payable for agreeing not to compete for a particular period.
- Forfeiture of deposit or advance as a penalty.
- Penalty for breach of contract.

Thus, in respect of notice pay being recovered by the employer company, GST is payable.

A view opposing the applicability of GST on buyout:

These opinions at A & B above, of course, cannot be conclusive as these are not judgments. Neither can we pass a judgment on your query. As an assessee, here an employer, has to shoulder the responsibility to pay tax, failing which they are subjected to penalty with interest. That's why they are not taking any chances. It's left to you to take up the fight hereonwards.

Can you further guide me on GST on the service bond amount? As per the agreement, there is nothing written about any charging of extra taxes on the service bond amount.

An employer, being an assessee for taxation like Professional Tax, TDS, IT, GST, etc., is duty-bound to deduct or collect appropriate taxes and levies, whether or not any contract or agreement lays down such a condition. It's possible, as you said, that your 'Service Bond agreement' didn't contain a clause stating that GST will be charged on the 'buyout' notice period. However, that doesn't stop your employer from recovering the GST from you. This is because GST is a statutory levy applicable in such instances, giving them the authority to collect government levies. Failing to do so might result in them bearing the levy themselves or paying it to the government first and collecting it from you later. The presence or absence of a clause in the agreement does not affect the charging of GST.

In the other case, regarding your colleague from whom no GST was charged, it might have been an oversight on the part of the administration, I presume.

Thank you.