High Court allowed refund on GST paid on Notice Pay Recovered from employees

Manappuram Finance Ltd. Versus Assistant Commissioner [Kerala High Court]

The taxpayer paid GST on notice pay recovery made from the departing employees. However, the Central Board of Indirect Taxes and Customs (‘CBIC’) vide Circular No. 178/10/2022-GST dated August 3, 2022, clarified that GST is not payable on notice pay recovery.

The taxpayer, therefore, claimed back the GST earlier paid on such notice pay recovery. The Department as well as the Appellate Authority rejected the refund claim.

Held: The Court held that the abovementioned Circular only clarifies the position that notice pay is not chargeable to GST. Therefore, the same must be read retrospectively.

The Court also observed that the in the decisions of the Supreme Court in Navnit Lal C. Javeri Versus KK. Sen, Appellate Assistant Commissioner Of Income-tax, Bombay which was applied and followed in KP Varghese Versus Income-tax Officer, Ernakulam, and Another are binding precedents for the proposition that Circulars are binding on the Department and no officer can take a view contrary to stipulations contained in such Circulars.