Would GST be levied on notice pay, surety bond, canteen fees? AAR clarifies
Any transactions with employees entered into by the applicant company will not come under the purview of GST as they would not be in the nature of a ‘supply’. The transactions include recovery of notice pay, recovery of bond or surety amount, deduction from salary of a nominal sum for provision of canteen facilities, and a charge for issue of a duplicate identity card.
The Haryana bench of the GST-Authority for Advance Rulings (AAR), in a recent ruling, noted that since these transactions are not a ‘supply’, so, no GST implications would arise on them. The Central Board of Indirect Taxes and Customs (CBIC) had in August issued a circular clarifying the implementation of GST on employee-related transactions. Now, the Haryana AAR has perhaps become the first to address this.
The AAR ruling came while hearing the case pertaining to RITES, a company under the Indian Railways. The transport infrastructure company sought an advance ruling on a host of issues including notice pay, identity card re-issue fee, canteen fee, according to a TOI report.
GST on notice pay
Several RITES employees who were undergoing probation had a one-month notice period, whereas the period was three months for others. In case a worked failed to serve this notice period, a notice pay was either recovered from the employee or deducted from pending pay.
In its ruling, the Haryana AAR noted that the notice pay does not result in the provision of service by either party and is a safety-valve mechanism. It is basically a compensation offered by the defaulting party and not a consideration. Since, the employee is the service provider in this case and the services offered during the course of employment are excluded from the definition of supply under GST laws, no GST implications arise.
GST on surety bond
A similar case was made for contractual employment in which a surety bond of Rs 1 lakh was executed at the time of joining. The AAR maintained that the forfeited amount was not a consideration and there would be no GST liability.
RITES also raised the issue of a Rs 100 fee charged on the issuance on another identity card in the event of loss or damage to the first identity cards. The cards were printed in-house by the company and the AAR held that this fee would not be subject to GST.
GST on canteen fee
RITES’ canteen fee case was related to the canteen facilities it provided at its factory premises, serviced by a third-party caterer. The company charged a nominal sum from the employees and distributed the same to the caterer while the remaining charges of meals and beverages were paid by it. The AAR bench ruled that the nominal sums recovered from employees would not be subject to GST.
