New Delhi, May 22: The Delhi High Court has restrained tax authorities from taking coercive action against InterGlobe Aviation in a ₹458 crore GST dispute linked to compensation received from a foreign aircraft engine manufacturer. The court observed that the payment appeared compensatory in nature rather than consideration for a taxable supply under GST law.
Delhi High Court’s Interim Relief
A Division Bench comprising Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul granted interim protection to the airline while hearing its challenge against the GST demand and an equivalent penalty.
The court issued notice to the tax department and directed authorities not to initiate coercive steps against the airline until the next hearing after the court vacation.
What Triggered The GST Dispute?
The dispute arose after an overseas aircraft engine manufacturer compensated IndiGo for engine faults reported during 2018-19 and 2019-20. The defective engines allegedly caused aircraft groundings and operational disruptions.
According to the airline:
- The supplier issued credit notes worth nearly ₹2,000 crore
- The payments compensated business losses and reduced flying hours
- The amount was not consideration for any service
However, GST authorities argued that IndiGo effectively “tolerated” deficiencies in engine performance in exchange for compensation, making it taxable under the reverse charge mechanism.
IndiGo’s Arguments In Court
Senior advocate V Lakshmikumaran, representing the airline, argued that:
- The payments were purely compensatory damages
- No taxable “supply” existed under GST provisions
- IndiGo had already paid IGST during aircraft and engine imports
- Compensation for breach of contract cannot be treated as payment for tolerating a breach
The airline relied on:
- Section 7 of the CGST Act
- A CBIC circular dated August 3, 2022
IndiGo maintained that a taxable supply arises only when there is an agreement to perform, refrain from performing, or tolerate an act in return for consideration.
Airline Also Claims Export Of Service
IndiGo additionally argued that even if the arrangement were classified as a service transaction, it would qualify as an export of service because:
- The supplier was located outside India
- Payments were received in foreign exchange
Therefore, GST liability would still not arise.
Court Questions Revenue Safeguards
During the hearing, the Bench asked how the government’s revenue interests would remain protected during the case.
In response, IndiGo highlighted its financial stability, stating that it was not a “fly-by-night operator” and pays more than ₹20,000 crore annually.
Why The Case Matters
The case could have wider implications for:
- GST treatment of compensation payments
- Interpretation of “tolerating an act” under GST law
- Aviation industry disputes involving defective equipment and damages
The Delhi High Court’s final ruling may influence how compensation and contractual damages are taxed in future commercial disputes.
50-Word Summary
The Delhi High Court has restrained coercive action against IndiGo in a ₹458 crore GST dispute involving compensation from a foreign engine manufacturer. The airline argued the payments were compensatory damages, not taxable services. The court observed the amount appeared compensatory and granted interim relief pending further hearings.
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