Salary not Covered by Provisions of Service Tax: CESTAT quashes Service Tax Demand [Read Order]

Quashing the service tax demand, the Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that Salary is not covered by provisions of service tax.

The appellant in the present matter is M/s. Kellogg India Pvt. Ltd. The appellant is manufacturer of excisable goods and is also holding service tax registration.

It was stated in the said show cause notice that Revenue has verified trial balance and books of accounts of the appellant and noticed that in respect of those employees who left their job without giving notice to the appellant for the period which was agreed upon between the appellant and their employees in case their employees leave the job there were recoveries of sums.

It was agreed between the appellant and their employees under clause 10 of agreement that in case the employee leaves the job with the appellant before serving the stipulated notice period of three months, the appellant would deduct an amount equivalent to incomplete days of notice period as basic salary from unpaid salary or such other dues to be paid to the employee.

It was argued in the said show cause notice that the said act of the appellant was a declared service and therefore the appellant was required to pay the said service tax on an amount of Rs.2,09,33,892/- not paid to the employees leaving employment, for the period from April 2014 to June 2017.

The Counsel appearing on behalf of the appellant submitted that the unpaid salary is accounted for in the books of account as notice pay recovery and the same is treated by Revenue as consideration for declared service for agreeing to tolerate the act of leaving the employment and that submitted that the amount which is unpaid to the employee is salary not paid and salary not paid is a part of total compensation of salary which is out of the purview of service tax.

A Two-Member Bench of the Tribunal comprising Anil G. Shakkarwar, Member (Technical) and Dr. Suvendu Kumar Pati, Member (Judicial) observed that “The basic fundamental of charging service tax at ad valorem is that the service provider has to receive consideration from the service recipient. Here as per the show cause notice, the appellant has not received any consideration and, therefore, the question of payment of service tax does not arise. The amount which is stated by Revenue in the show cause notice is the amount not paid as salary and retained by the appellant. Salary is out of the purview of service tax.”

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates