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GST on Employee fines & penalties

06 May 2023

The Employer has collected around Rs. 9lacs as penalties levied on Employees during the year.

This has thus been shown by the Employer as Other Income in the Financial Statement

ON GST Scrutiny, the officer has asked us to pay GST on the same

Is this income chargeable under GST?

Please help. Thanks 🙏

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3 Replies

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 06 May 2023

No GST attracts .
can give reference of Judgment by Madras High Court: K.Selvamani Vs The Managing Director, Tamil Nadu State Marketing Corporation Ltd.

As provision under Schedule II : Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is not cover under the defination of Supply under Section 7 of CGST Act.

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vikram kerekar (1244 Points)
Replied 12 May 2023

Sir, the penalties pertain to the Employees reporting late to work. The Madras High court judgement is for something else

Pankaj Rawat (GST Practitioner) (55052 Points)
Replied 15 May 2023

The case of M/s Rashmi Metaliks Ltd. v. Commissioner of Central Tax, Kolkata-I (2019) examined the issue of whether the penalty imposed by an employer on an employee for loss of goods is liable to GST. The Kolkata High Court held that since the penalty was not in the nature of a supply of goods or services, it was not liable to GST.

In the case of Bhupendra Singh Charan v. Union of India (2019), the Rajasthan High Court considered the issue of whether penalties imposed by the employer on the employee for non-compliance with GST provisions are liable to GST. The court held that since the penalty was not in the nature of a supply of goods or services, it was not liable to GST.

The case of Rajesh Kumar Gupta v. Union of India (2020) examined the issue of whether the penalty imposed by an employer on an employee for non-compliance with GST provisions was subject to GST. The Madhya Pradesh High Court held that since the penalty was not in the nature of a supply of goods or services, it was not liable to GST.

In summary, the above cases suggest that penalties imposed by an employer on an employee for non-compliance with GST provisions or loss of goods are not liable to GST, as they are not in the nature of a supply of goods or services. However, it is important to note that the facts of each case may differ, and the interpretation of the law may vary depending on the specific circumstances