An Appellate Authority for Advance Ruling (AAAR) has reversed an earlier ruling by AAR that said Goods and Services Tax (GST) should apply to payments in lieu of employee notice periods, providing clarity on directions that were seemingly in conflict.

An Advance Authority of Advance Ruling (AAR) had earlier said GST would be applicable on employee recoveries such as notice pay, group insurance and telephone bill.

The earlier ruling said that as in the case of notice pay, the company is actually “providing a service” to an employee and hence GST should be applied on that.

Under the GST framework, tax is levied on any activity that is viewed as supply of service-whether directly or deemed supply, ET had reported on November 30.

The ruling is in the case of Bharat Oman Refineries. The company had approached the AAAR in this regard. AAAR has now reversed the ruling. “Merely because the employer is being compensated does not mean any service has been provided to the employer or the employer has tolerated any act of the employee for premature exit,” AAAR ruled.

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