Case Title: Manappuram Finance Ltd. v. Assistant Commissioner of Central Tax and Excise
Court: High Court of Kerala
Petition Number: W.P.(C) No. 27373 of 2022
Category of Dispute: Refund – Taxability of Notice Pay under GST
Date of Judgment: December 7, 2022
Relevant Section: Article 226 of the Constitution of India; Section 11B of CGST Act (Refund), CBIC Circular No. 178/10/2022-GST dated 3-8-2022
Facts of the Case
- The petitioner, Manappuram Finance Ltd., a registered NBFC under GST, challenged the denial of refund of GST paid on notice pay received from its former employees. [Para 1]
- The petitioner argued that CBIC Circular No. 178/10/2022-GST clarifies that such notice pay is not a consideration for any taxable service and thus not liable to GST. [Para 2]
- Since the GST Appellate Tribunal had not been constituted, the petitioner approached the High Court under Article 226 for relief. [Para 1]
Questions in Consideration
- Whether the amount received by the petitioner as notice pay from its employees is subject to GST? [Para 5]
- Whether the CBIC Circular dated 03.08.2022 is retrospective and binding on the department? [Para 5]
- Whether the writ is maintainable despite availability of appellate remedy (Tribunal not yet constituted)? [Para 6]
Observations of the Court
- The Court noted that Para 7.5 of the CBIC Circular (Ext.P8) clarified that such notice pay amounts are penal and not consideration for any service, hence not taxable under GST. [Para 5]
- It relied upon Navnit Lal C. Javeri v. K.K. Sen and K.P. Varghese v. ITO to hold that such beneficial circulars are binding on the department and applicable retrospectively. [Para 5]
- The Court rejected the department’s argument on alternative remedy since the GST Appellate Tribunal was not constituted, making the writ petition maintainable. [Para 6]
Judgment of the Court
- The High Court quashed Ext.P1 (appellate order) and all consequential orders denying refund of GST paid on notice pay. [Para 6]
- It directed the department to reconsider the petitioner’s refund claim in light of the judgment and the CBIC Circular dated 03.08.2022. [Para 6]
Between Fine Lines
- The Kerala High Court ruled that notice pay recovered from employees is not taxable under GST as per CBIC Circular No. 178/10/2022-GST.
- Such circulars are clarificatory and apply retrospectively, providing relief even for past transactions.
- Circulars issued by CBIC are binding on tax officers and override contrary departmental actions.
- In absence of GST Appellate Tribunal, writ jurisdiction is justified.
- Refund claim rejection was overturned, restoring the petitioner’s right to reassessment.
Summary of Referred Cases
| Name of Case | Citation | Summary | Verdict |
| Suchitra Components Ltd. v. CCE | [2007] 208 ELT 321 (SC) | Beneficial circulars must be applied retrospectively. | Applied |
| Navnit Lal C. Javeri v. K.K. Sen | [1965] 56 ITR 198 (SC) | Circulars issued by CBDT are binding even if inconsistent with law. | Followed |
| K.P. Varghese v. ITO | [1981] 131 ITR 597 (SC) | Department bound by circulars; bona fide transactions must be exempted as per circular directives. | Followed |
| GET & D India Ltd. v. Dy. CCE | [2020] 115 taxmann.com 213 (Mad.) | Held that notice pay is not taxable under the Finance Act, 1994. | Relied Upon |
| Madhu Silica (P.) Ltd. v. CIT | [1997] 227 ITR 350 (Guj.) | Emphasized on binding nature of beneficial circulars in tax matters. | Referred |
| Ellerman Lines Ltd. v. CIT | [1971] 82 ITR 913 (SC) | Circulars by CBDT are binding even if they deviate from statutory language. | Followed |