CESTAT set aside the order passed by the Commissioner (Appels) and observed that the recovery in the present case is out of salary and salary is not covered by the provisions of service tax and, therefore, the demand is not sustainable.

Brief Facts:

The appellant, a manufacturer of excisable goods and also holds service tax registration was issued a show cause notice demanding service tax. The show cause notice stated that there were recoveries of sums of those employees who left their job without giving notice to the appellant for the period that was agreed upon between the appellant and their employees.

Contentions of the Applicant:

The learned counsel appearing for the appellant argued that the appellant enters into a contract with its employees and the term also includes that if the employee leaves the job without giving three months’ notice to the appellant, then on the basis of incomplete days of the notice period, some amount payable would be deducted from the amount payable to the employee. It was further stated that 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 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.

Observations of the Court:

The tribunal stated that the basic fundamental of charging service tax at ad valorem is that the service provider has to receive consideration from the service recipient and in the present case the appellant has not received any consideration and, therefore, the question of payment of service tax does not arise. It was further stated that the amount which is stated by Revenue in the show cause notice is the amount not paid as salary and retained by the appellant and salary is out of the purview of service tax.

The decision of the Court:

The court allowed the appeal and set aside the impugned order.

Case Title: M/s Kellogg India Pvt. Ltd. Vs. Commissioner of CGST & CE, Belapur

Coram: Hon’ble Dr. Suvendu Kumar Pati, Member (Judicial) and Hon’ble Mr. Anil G. Shakkarwar, Member (Technical)

Case No.: Service Tax Appeal No. 87665 of 2022

Advocate for the Applicant: Mr. Bharat Raichandani

Advocate for the Respondent: Mr. Nitin Ranjan

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