The Maharashtra Authority of Advance Ruling (AAR) in its recent ruling in the case of M/s Syngenta India Limited has held that no GST is payable on recoveries made from employees towards providing parental insurance and on notice pay recovery.
Facts of the Case:
The applicant, M/s Syngenta India Limited manufactures or sells pesticides, herbicides & various types of seeds and offers various incentives to its employees as a part of its employment policy, like group insurance policy for its employees, Parental Insurance Policy, etc.
Applicant issues employment letter (Employment Agreement) to its employees, which contains various terms and conditions of employment. Applicant, in its General Employment Conditions (HR Policy) also mentions the terms and conditions related to work, responsibility, termination, etc.
Voluntary Parental Insurance is provided to employees and the premium of the group insurance policy of the employees is completely borne by Applicant, the amount of Parental Insurance Policy is recovered from the salary of the employee who opts for it.
In case the employee does not serve the mandated notice period in full or part while resigning from employment, the applicant is entitled to monetary compensation referred to as notice pay recovery from the employee’s salary payment.
Issue on which ruling is sought:
The applicant has sought the advance ruling on the following issues:
i) whether the GST would be payable on recoveries made from the employees towards providing parental insurance and
ii) whether the GST would be payable on the notice pay recoveries made from the employees on account of not serving the full notice period.
Ruling of AAR:
The coram of Rajiv Mangoo and T.R.Ramanani noted that in the case of POSCO India adjudged by same AAR it was held that the recovery of parents health insurance expenses from the employee does not amount to supply of service under GST Laws.
Further AAR observed that recovery of notice pay from dues of employee/payment of notice pay by the employee who could not serve the notice for the period as per contractual agreement or appointment letter does not amount to supply and therefore as per Section 7 (1A) of the CGST Act, 2017, the provisions of Schedule II does not come into play.
In view of above also relying on the reasoning and decision given by the MPAAAR in Bharat Oman Refineries Ltd and the decision of the Madras High Court in the case of GE T&D India Ltd Vs Deputy Commr of Central Excise, LTU, Chennai, the AAR held that, the notice pay recovered by the applicant from its employees is not liable to GST.
The AAR accordingly held that GST would not be payable on recovery of amounts towards parental insurance from employees and also no GST will not be applicable on the notice pay recoveries made from the employees on account of not serving the full notice period.
It is important to note here that the AAAR, Madhya Pradesh in the matter of M/S. Bharat Oman Refineries Limited [Advance Ruling No. MP/AAAR/07/2021 dated 8th November 2021] had reversed the ruling of AAR which held that GST is applicable on recovery of:
- Notice pay from an employee by employer in lieu of notice period
- Telephone charges
- Group Medical Insurance Policy recovered from employees and providing
- Canteen charges as a facilitator between employees and canteen service provider
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
