{"id":8813,"date":"2026-04-23T18:05:48","date_gmt":"2026-04-23T12:35:48","guid":{"rendered":"https:\/\/www.centaxonline.com\/blog\/?p=8813"},"modified":"2026-04-24T08:06:58","modified_gmt":"2026-04-24T02:36:58","slug":"notice-pay-recovery-not-taxable-as-supply-under-gst-aar","status":"publish","type":"post","link":"https:\/\/www.centaxonline.com\/blog\/notice-pay-recovery-not-taxable-as-supply-under-gst-aar","title":{"rendered":"Notice Pay Recovery Not Taxable as Supply Under GST | AAR"},"content":{"rendered":"<pre><strong>Case Details: <a href=\"https:\/\/www.centaxonline.com\/latest-news-updates\/gst\/101010000000418347\/notice-pay-recovery-from-employee-is-not-consideration-for-tolerating-an-act-but-penalty-for-breach-of-contract-aar\">In re: Carraro India Pvt. Ltd. (2026) 41 Centax 166 (A.A.R.-GST-Mah.)<\/a><\/strong><\/pre>\n<h2><em>Judiciary and Counsel Details<\/em><\/h2>\n<ul>\n<li><strong>Shri D.P. Gojamgunde<\/strong> &amp; <strong>MS. Himani Dhamija,<\/strong> Members<\/li>\n<\/ul>\n<h2><em>Facts of the Case<\/em><\/h2>\n<p>The applicant stated that employment terms required a notice period. Employees had an option, subject to employer consent, to pay salary in lieu of shortfall. The shortfall amount was computed on the last drawn salary. The amount was deducted from the full and final settlement and not collected as a separate payment. The deduction was intended to discourage shorter notice periods. The applicant treated the deduction as damages for breach of employment terms and sought a ruling on the taxability of such notice pay recovery under GST. The matter was accordingly placed before the Authority for Advance Ruling (AAR).<\/p>\n<h2><em>AAR Held<\/em><\/h2>\n<p>The AAR held that CBIC <a href=\"https:\/\/www.centaxonline.com\/search?searchData=Circular%20No.%20178%2F10%2F2022-GST&amp;itemType=AP\">Circular No. 178\/10\/2022-GST,<\/a> dated 03-08-2022 clarified that notice pay recoveries were penalties to deter premature leaving. It was held that such recovery was not consideration for tolerating an act. It was observed that the employee received nothing in return against such a deduction. It was further held that neither any service was provided nor any consideration was paid. Accordingly, such notice pay recovery was not taxable under GST.<\/p>\n<h2><em>List of Cases Cited<\/em><\/h2>\n<ul>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2022%20(58)%20G.S.T.L.%20382&amp;itemType=AP\">Amneal Pharmaceuticals (P.) Ltd.<\/a> \u2014 2022 (58) G.S.T.L. 382 (App. A.A.R. &#8211; GST &#8211; Guj.) \u2014 Referred [Para 2.9]<\/li>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2019%20(31)%20G.S.T.L.%20193%20(Bom.)&amp;itemType=AP\">Bai Mamubai Trust v. Suchitra<\/a> \u2014 2019 (31) G.S.T.L. 193 (Bom.) \u2014 Referred [Para 2.28]<\/li>\n<li>Caltech Polymers (P.) Ltd. \u2014 [2018] 98 taxmann.com 355 (AAAR &#8211; Kerala) = 2018 70 GST 582 (AAAR &#8211; Kerala) \u2014 Referred [Para 3.3]<\/li>\n<li>Cema Electric Lighting Products India P. Ltd. v. CCE \u2014 [2014] 48 taxmann.com 232 (Gujarat) = 2014 47 GST 189 (Gujarat) \u2014 Referred [Para 2.34]<\/li>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2015%20(37)%20S.T.R.%20718%20(Guj.)&amp;itemType=AP\">Cema Electric Lighting Products India Private Limited v. CCE<\/a> \u2014 2015 (37) S.T.R. 718 (Guj.) \u2014 Distinguished [Para 5.5.9]<\/li>\n<li>Cinemax India Limited v. Union of India MANU\/GJ\/ 1053\/2011 \u2014 Distinguished [Para 5.5.9]<\/li>\n<li>Cinemax India Ltd. v. Union of India \u2014 [2011] 12 taxmann.com 492 (Gujarat) \u2014 Referred [Para 2.30]<\/li>\n<li>Federal Mogul Goetze India Ltd. \u2014 [2023] 148 taxmann.com 165 (AAR &#8211; Karnataka) \u2014 Referred [Para 3.5]<\/li>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2015%20(38)%20S.T.R.%20129%20(Tri.-Bom)&amp;itemType=AP\">Hindustan Coca Cola Beverages (P.) Ltd. v. CCE<\/a> \u2014 2015 (38) S.T.R. 129 (Tri.-Bom) \u2014 Referred [Para 2.34]<\/li>\n<li>Indian Institute of Technology v. State of Uttar Pradesh \u2014 2006 taxmann.com 3023 (Allahabad) \u2014 Referred [Para 2.32]<\/li>\n<li>Indian Institute of Technology v. State of Uttar Pradesh &amp; Ors. \u2014 Distinguished [Para 5.5.9]<\/li>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2019%20(29)%20G.S.T.L.%20778&amp;itemType=AP\">Jotun India (P.) Ltd.<\/a> \u2014 2019 (29) G.S.T.L. 778 (A.A.R. &#8211; GST) \u2014 Referred [Para 2.18]<\/li>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2020%20(42)%20G.S.T.L.%20470&amp;itemType=AP\">Mfar Hotels &amp; Resorts Pvt. Ltd.<\/a> \u2014 2020 (42) G.S.T.L. 470 (A.A.R. &#8211; GST &#8211; T.N.) \u2014 Referred [Para 5.4.4]<\/li>\n<li>M\/s Hindustan Coca Cola Beverages Pvt. Ltd. v \/s CCE, Nashik \u2014 Distinguished [Para 5.5.9]<\/li>\n<li>Musashi Auto Parts (P.) Ltd. \u2014 [2021] 124 taxmann.com 87 (AAR &#8211; Haryana) \u2014 Referred [Para 5.4.4]<\/li>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2021%20(49)%20G.S.T.L.%20315&amp;itemType=AP\">North Shore Technologies (P.) Ltd.<\/a> \u2014 2021 (49) G.S.T.L. 315 (A.A.R. &#8211; GST &#8211; U.P.) \u2014 Referred [Para 2.10]<\/li>\n<li><a href=\"https:\/\/www.centaxonline.com\/search?searchData=2019%20(21)%20G.S.T.L.%20351&amp;itemType=AP\">Posco India Pune Processing Center (P.) Ltd.<\/a> \u2014 2019 (21) G.S.T.L. 351 (A.A.R. &#8211; GST) \u2014 Referred [Para 2.18]<\/li>\n<li>SRF Ltd. \u2014 [2022] 145 taxmann.com 3 (AAR &#8211; Gujarat) \u2014 Referred [Para 2.11]<\/li>\n<li>Tata Motors Ltd. \u2014 [GST-ARA-23-2019-20\/B-46, dated 25-8-2020] \u2014 Referred [Para 2.35]<\/li>\n<li>Zydus Lifesciences Ltd. \u2014 [Guj\/GAAR\/R\/2022\/42] \u2014 Referred [Para 2.11]<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Case Details: In re: Carraro India Pvt. Ltd. (2026) 41 Centax 166&hellip;<\/p>\n","protected":false},"author":19,"featured_media":8826,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[37,60,189],"tags":[],"class_list":["post-8813","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-gst","category-news","category-gst-case-chronicles"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.9 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Notice Pay Recovery Not Taxable as Supply Under GST | AAR<\/title>\n<meta name=\"description\" content=\"AAR rules notice pay recovery is penalty for breach, not consideration for tolerating act; no GST applicable on such deductions.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.centaxonline.com\/blog\/notice-pay-recovery-not-taxable-as-supply-under-gst-aar\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Notice Pay Recovery Not Taxable as Supply Under GST | AAR\" \/>\n<meta property=\"og:description\" content=\"AAR rules notice pay recovery is penalty for breach, not consideration for tolerating act; 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