The Gujarat Authority of Advance Ruling (AAR) ruled that 18% GST on the recovery of Notice Pay from the employees who are leaving the company without completing the notice period.
The applicant, M/s Amneal Pharmaceuticals Pvt. Ltd. is a 100% Export Oriented Unit (EOU) engaged in the manufacturing of pharmaceuticals products. They, at the time of appointing any employee at their factory, are entering into a contract with employees by issuing an “Appointment Letter”.
Under appointment letter, it has been clearly mentioned that, either parties shall serve a three months mandatory notice to terminate this contract. Thus, three months’ notice is mandatory for all employees/employers.
In case, if any employee does not serve the notice period after tendering the resignation, then as per contract (Appointment Letter) condition, company is entitled to recover the notice pay from the agreed portion of salary to compensate the loss to the company.
The applicant has sought advance ruling in respect of the question whether the applicant is liable to pay GST on recovery of Notice Pay from the employees who are leaving the company without completing the notice period as specified in the Appointment Letter issued as per the contract entered between Employer and the Employee.
The coram consisting of Sanjay Saxena and Mohit Aggarwal held that the applicant is liable to pay 18% GST under the entry of “services not elsewhere classified, on the recovery of Notice Pay from the employees who are leaving the company without completing the notice period as specified in the Appointment Letter issued as per the contract entered between them
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