Salary Is Out Of The Purview Of Service Tax: CESTAT Quashes Service Tax Demand Against Kellogg
The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has quashed the service tax demand against Kellogg India and held that salary is out of the purview of service tax.The bench of Suvendu Kumar Pati (Judicial Member) and Anil G. Shakkarwar (Technical Member) has observed that the amount that is unpaid to the employee is salary not paid, and the salary not paid...
The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has quashed the service tax demand against Kellogg India and held that salary is out of the purview of service tax.
The bench of Suvendu Kumar Pati (Judicial Member) and Anil G. Shakkarwar (Technical Member) has observed that the amount that is unpaid to the employee is salary not paid, and the salary not paid is a part of the total compensation of salary that is out of the purview of service tax.
The appellant/assessee, Kellogg India, is a manufacturer of excisable goods and also holds service tax registration. The appellant was issued a show cause notice demanding service tax. It was stated in the show cause notice that the department noticed that in respect 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, in case their employees left the job, there were recoveries of sums.
It was agreed between the appellant and their employees that if the employee leaves the job before serving the notice period, the appellant would deduct an amount equivalent to the incomplete days of the notice period from unpaid salary or other dues.
The appellant contended that it does not receive any consideration from its employee. The unpaid salary is accounted for in the books of account as notice pay recovery, and it is treated as consideration for declared service for agreeing to tolerate the act of leaving employment.
The tribunal held that the basic principle of charging service tax at ad valorem is that the service provider has to receive consideration from the service recipient. As per the show cause notice, the appellant has not received any consideration, and, therefore, the question of payment of service tax does not arise.
Case Title: M/s. Kellogg India Pvt. Ltd. Versus Commissioner of CGST & CE, Belapur
Case No.: Service Tax Appeal No. 87665 of 2022
Date: 16.06.2023
Counsel For Appellant: Bharat Raichandani
Counsel For Respondent: Nitin Ranjan