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*_Recovery of Notice Pay is not a Supply under GST: AAR, Maharashtra_*

*In the Favour of Taxpayer*


Whether the notice pay recovered by the employer from the employee in lieu of not serving the notice period is a supply under Section 7 of CGST Act 2017? Whether the recovery of notice period shall be treated as consideration towards tolerating and forbearing an act of the employee?


AAR, Maharashtra in case of M/s Syngenta India Limited held that the recovery of notice pay is not a supply in terms of Section 7 of CGST Act 2017. The ruling held that the notice pay is paid in terms of the employment contract where an employee in order to get relieved earlier pays the said notice period. The payment for notice period does not require any acceptable or approval of the employer. Hence there is no activity between both of them to call such transaction a supply. Further ruling held that the payment of notice pay shall not be treated as payment towards tolerating an act as there is no pre-decided contract or agreement which the employer tolerates by payment of notice pay. Under these circumstances no GST could be levied on the notice pay.

*Our View*

The ruling is absolutely apt in considering the fact that the notice pay is a condition of an employment contact which the employee exercises to get relieved earlier. It does not result into any supply. Further the clause regarding obligation to tolerate an act has also been well explained to include only those transactions where one party specifically agrees to tolerate or do an act for a consideration. Merely because money flows pursuant to a contract which has been entered for some other purpose does not form part of this clause.

The ruling will go a long way in bringing clarity to the concept of obligation to refrain/tolerate or to an act. The ruling shall have a huge impact while considering the taxability of liquidated damages.

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