Service tax - applicability of ST in regard to payment of amount to employer by employee due to short notice of resignation

[Lakkur SAI KRISHNA KUMAR]

Dear friends

Greetings!

I have a small query on applicability of service tax

Section 65B (44) while defining  "service" clearly excludes " a provision of service by an employee in the course of or in relation to employment' . You can observe that the definition is with reference to " employee" only.

The case which I intent to narrate is the otherway around - i.e employee paying the amount to employer , on resignation, due to short notice. 

 In other words to  put it  more clearly  , let us say, by virtue of contract of employment, if the employee is supposed to give, say, 3 months notice  to employer on resignation, else pay 3 months salary  for short notice, now the employee resigns without 3 months notice,  he is asked to remit 3 months salary - whether the transaction attracts service tax or not?  The above definition does not cover this trype of transaction in the course of employment.

It will be interesting for me to get feed backs from the group

Thanks and regards

SAI KRISHNA KUMAR

 

[venkates...@chettinadcement.com]

The employment is not covered under Service of Contract. To my knowledge this transaction is not covered under service tax ambit. Trust this clarifies.

Sent from my BlackBerry® smartphone

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From: Lakkur SAI KRISHNA KUMAR <lakk...@gmail.com>

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Date: Tue, 24 Sep 2013 16:59:08 +0530

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Subject: {IDT} Service tax - applicability of ST in regard to payment of amount to employer by employee due to short notice of resignation

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[Lakkur SAI KRISHNA KUMAR]

Dear sir 

Thanks for the prompt reply. My view is what is exempted is what is paid by the employer i.e flow of money from employer to employee. But in this case it is just the opposite way. I  wonder whether the  effect is reverse i.e that it is taxable.

thanks again sir

regards 

sai krishna kumar

[Kasi viswanathan V]

As per my limited knowledge :- It is a declared service - agreeing to the obligation to tolerate an act or situation. Since the same is done for a consideration, the transaction falls within the ambit of Service tax.

This particular category of declared services is taken from European Union, hence it would be good to know their cases on this provision. I could not find the case of EU on the subject, if someone finds please do pass on.

[Lakkur SAI KRISHNA KUMAR]

Dear Mr kasi 

thanks for the mail and grateful to you

regards

sai

[CA Ganesh Prabhu Balakumar]

I am of the view that it will get attracted under declared service section 66E (e) "agreeing to the obligation to refrain from an act,.." Also as per Sec 65B(44) any activity provided by one person to another for consideration....

An another view can be expressed is can it be called as a penal charge or penalty if Yes, Service Tax is not applicable.

Ganesh Prabhu B l Partner l C.Ramasamy & B.Srinivasan, Chartered Accountants l M +91 98404 71139 l D 044 4045 9999 l

"The success of the practitioner is that he should provide quality, at the price (where the value derived is higher than the fees), with grace and affection (with a smile) and there should be an element of service in the practice."