MUMBAI: The Haryana bench of the GST-Authority for Advance Rulings (AAR) has held that transactions with employees entered into by the applicant company — such as 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 — would not be in the nature of a ‘supply’. Thus, no GST implications would arise.
With this ruling, the AAR bench has perhaps become the first to address various employee-related transactions subsequent to clarifications that were issued by the Central Board of Indirect Taxes and Customs (CBIC) in August. This circular had been covered by TOI in its August 5 edition.
The latest case relates to RITES, a company set up under the aegis of Indian Railways and which is a multi-disciplinary consultancy outfit in the arenas of transport, infrastructure and related technologies. It sought an advance ruling on a host of issues. Employees of RITES who were undergoing probation had a one-month notice period, whereas it was three months for others. If an employee could not serve this notice period, a notice pay was either recovered from the employee or deducted from the pending salary payment.
The AAR bench observed that notice pay does not result in the provision of service by either party. It is a safety-valve mechanism — a compensation that is given by the defaulting party and is not a consideration. It is the employee who is the service provider and services provided by an employee in the course of employment are excluded from the definition of supply under GST laws. Thus, no GST implications arise.
In case of contractual employment arrangements, RITES as a policy had a bond period which the resigning employee had to serve. A surety bond of Rs 1 lakh was executed by it from its contractual employees at the time of joining itself. If the contractual employee quit before the bond period, the surety amount was forfeited. The AAR held that the forfeited amount was not a consideration and there would be no GST liability.
In the event of loss or damage to identity cards, employees were issued another card against a fee of Rs 100. The cards were printed in-house by the company. The AAR bench held that this fee would not be subject to GST.
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Last, RITES provided canteen facilities at its factory premises, serviced by a third-party caterer. It recovered a nominal sum from the employees and distributed the same to the caterer. The remaining cost of the meals and beverages was borne entirely by it. The AAR bench ruled that the nominal sums recovered from employees would not be subject to GST.
