GST on Notice Pay and Forfeited Fees: Karnataka AAR Case Withdrawn
The Karnataka tax authority gave no ruling on notice pay and forfeited fees after the applicant withdrew its request.
- Ruling
- KAR ADRG 07 / 2018 Dated 23rd April, 2018
- Dated
- 23 Apr 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Manipal Academy asked if GST applies to notice pay and forfeited fees.
- The academy withdrew its GST advance ruling application before a decision was made.
- The Karnataka tax authority dismissed the application without ruling on the merits.
- No legal rule was set for notice pay recoveries or fee forfeitures.
In short
Manipal Academy for Higher Education asked the Karnataka Authority for Advance Ruling (AAR) whether Goods and Services Tax (GST) applies to notice pay recovered from leaving employees, fees forfeited when students drop out, and compensation collected from candidates breaching service contracts. However, before the tax authority could decide on these questions, the academy filed a written request to withdraw its application.
What has changed
How it worked before
Businesses and educational institutions were uncertain whether recovering notice pay from employees or forfeiting student fees counted as a taxable supply under GST.
What has changed
Nothing changed legally because the tax authority allowed the withdrawal without ruling on the questions. The order contains no decision on whether GST applies to notice pay, fee forfeitures, or breach compensation.
Who this affects
Schools, universities, and businesses that recover notice pay from exiting employees or forfeit fees when students or clients cancel.
What you should do
Do not treat this order as a tax decision, as the authority never decided the issue. An advance ruling only binds the business that applied for it anyway, so you should consult a tax professional or apply for your own ruling if you need certainty on GST for notice pay.
If you do nothing
Assuming this order settles the law on notice pay or forfeited fees puts your business at risk. If you miscalculate tax based on an unadjudicated case, a tax officer can demand unpaid GST along with interest and penalties. This withdrawal order provides no legal protection during an audit.
The terms explained
- Notice pay recovery
- An amount deducted from a resigning employee's final settlement if they leave without serving the agreed notice period.
- Advance ruling
- An official tax decision given by authorities to a specific business explaining how GST laws apply to its proposed transactions.
- Liquidated compensation
- A pre-agreed amount paid by a party to compensate a business for breaking a contract early.
The ruling in detail
Authority for Advance Ruling
M/s MANIPAL ACADEMY FOR HIGHER EDUCATION
KAR ADRG 07 / 2018 Dated 23rd April, 2018 · Karnataka
Questions before the authority
- Whether the amount recovered from post graduate course candidates as compensation on certain contingencies, is liable to GST in the hands of Manipal Academy of Higher Education?
- Whether the amount recovered from employees as notice pay recovery for not serving agreed notice period is liable for GST?
- Whether fees forfeited from students on discontinuing the course, before the term, is liable to GST?
Facts
The applicant is engaged in providing educational and healthcare services to the general public. It enters into agreements with post-graduate course candidates to undergo studies and subsequently serve in its constituent units or affiliated hospitals for a minimum period of three years. The applicant recovers liquidated compensation, notice pay, or forfeited fees if candidates or employees discontinue courses, fail to join employment, or leave before completing the mandatory notice or service periods.
Ruling
The Authority for Advance Ruling **dismissed the application as withdrawn** upon the written request of the applicant. No substantive ruling was pronounced on the taxability of compensation, notice pay recoveries, or forfeited fees.
Reasoning
During the course of the proceedings, the applicant submitted a letter dated 19.02.2018 informing the Authority of its intent to withdraw the application. Since the applicant explicitly requested permission to withdraw the Form GST ARA-01, the Authority permitted the withdrawal without adjudicating the questions on merits.
Provisions relied on
- Section 97 of the CGST Act, 2017
- Section 98(4) of the CGST Act, 2017
- Section 98(4) of the KGST Act, 2017
For the practitioner
This order carries **no legal precedent** on the GST implications of notice pay recoveries, course fee forfeitures, or candidate breach compensation, as the matter was dismissed as withdrawn before adjudication.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/07-manipal_academy-1-aar-order.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.