No Service Tax on 'Notice Pay' and 'Bond Money' Recovered from Outgoing Employees: CESTAT Entitles Maruti Suzuki to Refund u/s 11BB [Read Order]
The issue in the present case was whether compensation received for failure to perform under a contract constitutes a declared service under Section 66 (e) of the Finance Act, 1994.
![No Service Tax on Notice Pay and Bond Money Recovered from Outgoing Employees: CESTAT Entitles Maruti Suzuki to Refund u/s 11BB [Read Order]](https://images.taxscan.in/h-upload/2026/03/12/2129015-no-service-tax-on-notice-pay-and-bond-money-site-imagejpg.webp "No Service Tax on Notice Pay and Bond Money Recovered from Outgoing Employees: CESTAT Entitles Maruti Suzuki to Refund u/s 11BB [Read Order]")
The Customs, Excise and Service Tax AppellateTribunal (CESTAT), Chandigarh Bench, held that refund was entitled to MarutiSuzuki India Ltd., the appellant. It was held that service tax on ‘notice pay’ and ‘bond money’ recovered from the employees leaving their job was not applicable. The main issue in the present matter was whether compensation received for failure to...
The Customs, Excise and Service Tax AppellateTribunal (CESTAT), Chandigarh Bench, held that refund was entitled to MarutiSuzuki India Ltd., the appellant. It was held that service tax on ‘notice pay’ and ‘bond money’ recovered from the employees leaving their job was not applicable.
The main issue in the present matter was whether compensation received for failure to perform under a contract constitutes a declared service. Maruti Suzuki employs various professionals for different job profiles. The appellants paid service tax but found that the same is not taxable and thus, filed refund claims.
In brief, it needs to be considered whether the appellants are liable to pay service tax on “notice pay” and “bond money” recovered from the employees leaving their job with the appellants.
The counsel for the appellant submitted with reliance that amounts received for non-performance of a contract does not fall under the ambit of “agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act, as a declared service”.
Additionally, it was submitted that forfeiture of salary or payment of bond amount in the event of the employee leaving employment before the minimum agreed period shall not be taxable under GST. Finally, it was also submitted that the appellant was entitled to refund under Section 11BB of the Central Excise Act, 1944.
The two member bench of S.S. Garg (Judicial Member) and P. Anjali Kumar (Technical Member) allowed the appeal with consequential relief, concurring with Ranbaxy Laboratories Ltd. v. Union of India and Ors and M/s Dow Chemicals International Pvt Ltd v. Commissioner of Service Tax - VII, Mumbai.
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