Applicability of GST on Notice Pay amount recovered by employer

Case Details:

Issue- In the above case, the petitioner was a non-banking finance company and is an assessee under the GST Regime. This writ petition was filed challenging order in appeal to the extent it found that the petitioner is liable to pay tax on notice pay received from the former employees of the petitioner. The appellate authority upheld the orders of the original authority, which had rejected the claim for refund made by the petitioner for a refund of GST paid on notice pay received from the erstwhile employees. It is the case of the petitioner that since the GST Appellate Tribunal has not been constituted, the petitioner has no other remedy other than to approach this Court under Article 226 of the Constitution of India.

Held- It was held that the terms of Circular No. 178/10/2022-GST, dated 3-8-2022 specifically deal with the question arising for consideration in this case. The Circular clarifies that the amount of money received by the petitioner as notice pay from erstwhile employees is not a taxable transaction for the purposes of the GST laws. As rightly contended by the learned senior counsel, the decisions of the Supreme Court in Navnit Lal C. Javeri (supra) which was applied and followed in K.P. Varghese (supra) are binding precedents for the proposition that Circulars are binding on the Department and no officer can take a view contrary to stipulations contained in such Circulars. Therefore, all orders rejecting the application of the petitioner for a refund of GST paid on notice pay received by the petitioner from its employees were quashed. The applications filed by the petitioner for refund shall stand restored to the file of the respondent, who shall reconsider the matter, having regard to the findings contained in this judgment.