Notice Pay Recovered from Employees Who Leave Without Completing Notice Period Not Liable to Service Tax

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has held that notice pay recovered from employees who leave without serving the stipulated notice period is not subject to service tax.

The Tribunal observed that such amounts are in the nature of compensation for breach of contract and cannot be treated as consideration for any service. It clarified that service tax is leviable only on payments made for rendering services, not on compensatory recoveries.

Consequently, the Tribunal set aside the service tax demand raised through the show cause notice.