Question

We are a large manufacturing company. We are charging penalty for unwanted acts like carring gutka/tobaccoo/Biri/Cigarettee from employee and out siders / notice pay from employee. Please advise applicability of GST on this amount.

Answer

According to clause 1 of Schedule-III Services by an employee to the employer in the course of or in relation to his employment are exempt. But in case of notice pay from employee the service is provided by Employer and the same is taxable as per clause 5(e) of schedule II as follows:

" Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and".

Under Service tax regime some cases related to notice period are settled in favour of assessee but in GST regime the same is taxable.

So far as penalty for unwanted acts like carring gutka/tobaccoo/Biri/Cigarettee is concerned, it also taxable as per the above mentioned clause.

The Company is required to raise invoice for the amount of penalty charged. The HSN code of service is 9997 and tax is charged @ 18% as per S.no 35 of notification no. 11/2017-Central Tax (Rate). (Reply dt.10/07/2018)