Quitting Your Company Before Notice Period? Pay 18% GST To Your Company!

Quitting Your Company Before Notice Period? Pay 18% GST To Your Company!
Quitting Your Company Before Notice Period? Pay 18% GST To Your Company!

In a very interesting judgement, a tax court in Gujarat has ruled that the employee need to lay GST of 18% for leaving a company without serving the notice period.

This can set a new precedent in the labor related cases, wherein the employee has quit without serving the notice period, and the company presses charges against them.

But, at the end of the day, is it fair for the employees?

Here are the details about the case.

Employees Quit Company Without Serving Notice Period

An employee working with Ahmedabad-based Amneal Pharmaceuticals quit the company, without serving the mandatory 3-months notice period. 

Amneal Pharmaceuticals is an export based company.

Since the notice period of 3-months was not served, the company asked the employee to pay the stipulated penalty for the same. 

Now, along with the penalty, the compay also asked 18% GST on the same.

The matter reached The Gujarat Authority of Advance Ruling, which deal with all tax and GST related disputes.

Employee Will Need To Pay 18% GST

While giving a verdict on this case, the The Gujarat Authority of Advance Ruling said that 18% GST is valid on the recovery of the pay which the employees needs to transfer to the company.

The Gujarat Authority of Advance Ruling termed this as “tolerating an act”, and the 18% GST will be in lieu of “breach in serving stipulated notice period.”

In the ruling, the Tax Authority said, “We hold that the applicant is liable to pay GST at 18 percent under the entry of services not elsewhere classified, on recovery of notice pay from the employees who are leaving the company without completing the notice period as specified in the appointment letter issued as per the contract entered between them,”

At the same time, this GST paid to the company cannot be exempted under employee exemptions, as part of the GST laws.

Now, this is an interesting ruling, since we already reported how more than 20,000 IT employees have filed petitions to reduce notice period from 3-months to 1-month.

We will keep you updated, as more details come in.

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