The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the service tax demand on notice pay recovered from employees for premature resignation.
The appellant, M/s Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. is a public sector undertaking of the Government of Rajasthan and is engaged in transmission of electricity.
Its records were audited by the Service Tax Department and it was found that the appellant has not discharged service tax which it recovered from its employees on their premature resignation, i.e., without giving the requisite notice period.
A Show Cause Notice was issued proposing to demand Service Tax on the amount which the appellant had recovered from its employees for premature resignations. It was also proposed to recover interest under Section 75 and impose penalty under section 78 of the Finance Act, 1994.
The question which falls for consideration is “whether the amounts received or recovered by the employer from its employees for resigning from the service without giving the requisite notice is exigible to Service Tax as a Declared Service under Section 66E(e) of the Finance Act, 1994 or not”.
The coram headed by the President, Justice Dilip Gupta and Technical Member, P.V.Subba Rao has held that Notice pay, in lieu of termination, however, does not give rise to the rendition of service either by the employer or the employee, the impugned order upholding confirmation of a demand of service tax on the notice pay received/recovered by the appellant from its employees for premature resignation cannot be sustained and needs to be set aside.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
