Statutory Framework
The goods and services tax regime in India is governed by the Central Goods and Services Tax Act, 2017 (the CGST Act). Section 7(1) of the CGST Act defines “supply” to include all forms of supply of goods or services made or agreed to be made for a consideration by a person in the course or furtherance of business, the import of services for a consideration, and the activities specified in Schedule I made without consideration. Section 7(1A) provides that where certain activities or transactions constitute a supply under sub-section (1), they shall be treated either as a supply of goods or a supply of services as referred to in Schedule II. Schedule II, Entry 5(e) specifies that “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act” shall be treated as a supply of services.
Correspondingly, the Integrated Goods and Services Tax Act, 2017 (the IGST Act) governs the levy of tax on inter-State supplies and imports of services. Section 2(11) of the IGST Act defines “import of services,” Section 5 is the charging provision for integrated tax, Section 7(4) treats supply of services imported into India as inter-State supply, and Section 13 determines the place of supply of services where the location of the supplier or recipient is outside India. Notification No. 10/2017-Integrated Tax (Rate) dated 28 June 2017 places the liability to pay integrated tax on such imported services on the recipient under the reverse charge mechanism. It was this statutory framework that the Revenue invoked to demand Integrated GST from the petitioner on a reverse charge basis.
Factual Context
Tata Sons Private Limited (“Tata”) is the principal investment holding company of the Tata Group and the owner of the Tata brand and trademarks. NTT Docomo Inc. (“Docomo”), a Japanese company, invested in the shares of Tata Teleservices Limited (“TTSL”) pursuant to a Shareholders Agreement dated 25 March 2009 (“SHA”) entered into between Docomo and TTSL. The SHA set out performance indicators to be achieved by TTSL, with the ‘Second Key Performance Indicators’ specified in Schedule 8 of the SHA. Pursuant to the SHA, Docomo acquired 26% of TTSL’s equity capital. Under Clauses 5.6.3 and 5.7.2 of the SHA, if TTSL failed to satisfy the Second Key Performance Indicators, Tata was obligated to find a buyer for Docomo’s shares at a ‘Sale Price.’
TTSL failed to satisfy the Second Key Performance Indicators, triggering a deemed Trigger Notice under Clause 5.7.1. Docomo issued a Sale Notice dated 7 July 2014 calling upon Tata to find a buyer under Clause 5.7.2. As Tata was unable to comply, disputes arose and Docomo submitted its request for arbitration to the London Court of International Arbitration (“LCIA”) on 3 January 2015. The Arbitral Tribunal rendered a unanimous award dated 22 June 2016, holding Tata liable to pay Docomo damages of USD 1,172,137,717, interest of USD 65,276,963, arbitration costs of GBP 119,012.59, and legal costs of JPY 1,067,670,175.
Docomo initiated enforcement proceedings in the courts of the United Kingdom and the United States, and separately filed proceedings before the Delhi High Court for enforcement of the award in India. Tata and Docomo filed Consent Terms in those proceedings, and the Delhi High Court, by its order dated 28 April 2017, declared the award enforceable in India as a deemed decree of the Court. Tata deposited Rs. 8,450 crores with the Registry of the Delhi High Court, and following receipt of approval from the Competition Commission of India and the relevant tax certificates, the awarded amounts were remitted to Docomo on 30 October 2017 and 7 November 2017.
Even before remittance, the Directorate General of GST Intelligence (“DGGI”) had, by letter dated 25 September 2017, opened an enquiry into the applicability of service tax on the payments. This enquiry continued intermittently for over four years through a protracted exchange of correspondence between Tata and the DGGI, including Tata’s representation dated 27 December 2019 to the Central Board of Indirect Taxes and Customs (“CBIC”) seeking clarification, to which no response was received.
On 28 September 2022, the DGGI issued an intimation under Form DRC-01A (F. No. DGGSTI/MZU/I&IS ‘A’/12(4)12/2017/3900), advising Tata to pay Integrated GST of Rs. 1,524,35,20,405 (approximately Rs. 1,524.35 crores) along with interest and penalty under Section 74(5) of the CGST Act, on the footing that Docomo, by tolerating Tata’s contractual defaults and refraining from further proceedings, had rendered a supply of service under Entry 5(e) of Schedule II.
Following a writ petition challenging the intimation, a personal hearing, and further correspondence, a Show Cause Notice dated 26 July 2023 was issued under Section 74(1) of the CGST Act by the Joint Director, DGGI, Zonal Unit, Mumbai, calling upon Tata to show cause why IGST of Rs. 1,524,35,20,405, computed on a total payment to Docomo of Rs. 84,68,62,24,473 (approximately Rs. 8,468.62 crores), should not be demanded with interest and penalty under Section 74(5). The Show Cause Notice referred in detail to CBIC Circulars dated 3 August 2022 and 28 February 2023, both relied upon by Tata and sought to distinguish them on the facts.
Procedural History
Tata filed Writ Petition No. 4914 of 2022, along with Interim Application (L) No. 17868 of 2023, before the Bombay High Court under Article 226 of the Constitution of India, challenging the DRC-01A intimation and, by subsequent amendment, the Show Cause Notice. On 30 March 2023, a coordinate Bench deferred the hearing to allow Tata to appear before the designated authority without prejudice to its contentions, including on jurisdiction.
Tata accordingly filed a detailed reply dated 31 May 2023 and was granted a personal hearing pursuant to a further order of the Court dated 6 June 2023. After the Show Cause Notice was issued, the matter proceeded to final hearing before the Division Bench of Justices G. S. Kulkarni and Aarti Sathe, which reserved judgment on 27 January 2026 and pronounced it on 30 April 2026, allowing the petition and quashing both the intimation and the Show Cause Notice.
The Revenue’s Case and the Petitioner’s Challenge
The Revenue’s case, as recorded in the Show Cause Notice, was that the Consent Terms filed before the Delhi High Court went beyond mere compliance with the arbitral award. In particular, paragraph 7 of the Consent Terms recorded that Docomo would suspend its UK and US enforcement proceedings for a six-month ‘Suspension Period’ pending Tata’s compliance with payment conditions, and would withdraw those proceedings only upon receipt of the funds within that period.
The Revenue characterised this Suspension Period as a separate, independent bargain under which Docomo agreed to refrain from an act, continuing the UK and US proceedings, which threatened attachment of assets of Tata group companies including Jaguar Land Rover and Tata Steel Europe and to tolerate Tata’s breach of the SHA, in exchange for the damages, thereby constituting a taxable supply of service under Entry 5(e) of Schedule II, importable from Docomo (located in Japan) to Tata (located in India) and taxable on a reverse charge basis.
Tata’s case, advanced by Mr. Arvind Datar, Senior Advocate, was that no independent consideration was paid to Docomo for the withdrawal of execution proceedings, and that such withdrawal was the obvious and inevitable outcome of Tata discharging the decretal amount in full and final satisfaction of the award, on which no tax could be levied.
Tata relied on CBIC Circular No. 178/10/2022-GST dated 3 August 2022, which clarifies that liquidated damages compensating for breach of contract are not consideration for a supply unless there exists a separate, independent agreement to tolerate an act for separate consideration, and on Circular No. 214/1/2023-Service Tax dated 28 February 2023, which reiterated this position and directed withdrawal of pending appeals against rulings that damages were not taxable. Tata further relied on the principle, settled by the Supreme Court in Union of India v. Raman Iron Foundry, (1974) 2 SCC 231, that damages are the fiat of a court or tribunal and do not represent consideration for any agreement.
The Court’s Reasoning
The Division Bench framed the determinative question as whether the settlement between Tata and Docomo in the Delhi High Court enforcement proceedings, filed under Sections 47 and 48 of the Arbitration and Conciliation Act, 1996, would amount to “supply” within the meaning of Section 7(1) of the CGST Act. The Court answered this in the negative, holding that Entry 5(e) of Schedule II cannot be read in isolation from Section 7: the words “agreeing to the obligation” in Entry 5(e) presuppose an independent agreement under which parties, in the normal course of business, bind themselves to refrain from an act, tolerate an act or situation, or do an act, involving consideration.
No such independent agreement existed in the Consent Terms, which the Court held to be “integral to” and “intricately connected” to the decree itself, with any reciprocal obligation in a settlement of a decree necessarily emanating from the decree rather than constituting an agreement independent of it.
The Court drew a direct analogy to the execution of an ordinary money decree: just as the attachment of a judgment debtor’s properties in different jurisdictions remains a proceeding “under the umbrella of the decree,” so too were Docomo’s UK and US enforcement proceedings instruments of realising the LCIA award, drawing their entire existence from the award and necessarily coming to an end upon its satisfaction.
The Court held that Docomo’s withdrawal of those proceedings, recorded in the Consent Terms and incorporated into the Delhi High Court’s order, was “a mandatory legal requirement” flowing from the legal incapacity of an award creditor to pursue execution once the award debt stands discharged not an independent commercial bargain for which Tata paid separate consideration.
On the nature of damages, the Court relied on the Supreme Court’s decision in Union of India v. Raman Iron Foundry, 1974 AIR 1265 which in turn affirmed the view of Chagla, C.J. in this Court’s decision in Iron and Hardware (India) Co. v. Shamlal & Brothers, 1954 SCC OnLine Bom 5, that a party who breaches a contract does not incur pecuniary liability at the moment of breach; the aggrieved party merely acquires a right to sue.
Liability arises only upon the “fiat of the Court” determining and quantifying damages, and the Court held that no qualitative distinction exists in this respect between liquidated and unliquidated damages, both representing compensation for breach rather than consideration for any commercial exchange. Applying this principle, the Court held that Docomo became entitled to the award amount only upon the LCIA Tribunal’s determination, and that no independent contract creating reciprocal obligations dehors the arbitral proceedings could be inferred from the parties’ compliance with the resulting award.
The Binding Force of CBIC Circulars
The Court held that CBIC Circular No. 178/10/2022-GST, dated 3 August 2022, correctly states the legal position: where an amount paid as liquidated damages compensates only for injury or loss suffered due to breach, and there is no agreement, express or implied, by the recipient to refrain from or tolerate an act, such payment is a mere flow of money and does not constitute consideration for a supply.
Paragraph 7.1.4 of the Circular frames the determinative test as whether the payment constitutes consideration for “another independent contract” envisaging toleration or forbearance; if not, there is no “supply.” The Court found this principle equally applicable to damages awarded by a court or arbitral tribunal, holding there to be no material distinction between liquidated damages and damages awarded in adjudicatory proceedings, since both represent compensation flowing from breach rather than consideration for an independent exchange.
The Court further noted that Circular No. 214/1/2023-Service Tax, dated 28 February 2023, reiterated this position in the service tax context, recording the CBIC’s decision not to file or pursue appeals against Tribunal rulings including in South Eastern Coalfields Ltd. v. Commissioner of Central Excise and Service Tax, Raipur, that hold such damages not taxable, and directing field formations to apply settled jurisprudence in determining taxability under the corresponding provision of the pre-GST regime, Section 66E(e) of the Finance Act, 1994. On Tata’s submission, supported by reliance on Paper Products Ltd. v. CCE, AIR 1999 Supreme Court 3341 , that such circulars bind the Revenue, the Court accepted that the impugned demand stood in defiance of the CBIC’s own settled position.
Limitation, Maintainability, and Systemic Implications
The Revenue contended that the writ petition was not maintainable in view of the availability of an alternate statutory remedy of appeal, and that the question of taxability ought to be left to the adjudicating authority. The Court rejected this objection, holding that where the designated officer lacked inherent jurisdiction to issue the Show Cause Notice in the first place because the underlying transaction fell outside the scope of Section 7 read with Entry 5(e), the existence of an alternate remedy could not oust the writ jurisdiction.
The Court relied on the Supreme Court’s recent decision in Godrej Sara Lee Limited v. Excise and Taxation Officer, 2023 SCC OnLine SC 95, for the principle that the rule requiring exhaustion of alternate remedies is one of policy, convenience, and discretion rather than an absolute jurisdictional bar, particularly where the petition raises a pure question of law and the impugned action is without jurisdiction — a principle traceable to the Constitution Bench decision in Whirlpool Corporation v. Registrar of Trade Marks, AIR 1999 Supreme Court 22.
The ruling carries systemic implications for the settlement of arbitral awards and money decrees generally. The Court expressly cautioned that accepting the Revenue’s approach would mean that the settlement of every money decree, wherever parties agree to a course of action purely under the decree without creating any independent obligation, would have to be regarded as a “supply of service”, a consequence the Court characterised as a situation “not recognized by law.”
For practitioners structuring or enforcing arbitral awards and settlements with an Indian nexus, the judgment confirms that consent terms incorporating timelines, suspension periods, or conditions precedent for withdrawal of ancillary enforcement proceedings remain incidental to the underlying award and do not, without more, constitute an independent taxable supply.
Conclusion: Finality and the Boundaries of Taxable Supply
The Bombay High Court’s decision in Tata Sons Private Limited v. Union of India & Ors., 2026:BHC-OS:11242-DB , decided on 30 April 2026, is a significant contribution to Indian indirect tax jurisprudence, emphasising that the settlement of a judicially or arbitrally determined money claim does not, without an independent agreement and independent consideration, constitute a supply of service under Entry 5(e) of Schedule II to the CGST Act.
The Court’s holding that Entry 5(e) must be read subject to the gateway conditions of Section 7, and that damages,whether liquidated or unliquidated, whether decreed by a court or awarded by an arbitral tribunal, represent the fiat of an adjudicator rather than consideration for a commercial bargain, closes a significant interpretive gap that had exposed settlements of arbitral awards to an expansive and, as the Court found, jurisdictionally unsound reading of the GST law.
The ruling requires immediate attention from corporate counsel advising on the enforcement and settlement of arbitral awards, particularly those involving consent terms with phased payment conditions, suspension periods, or staged withdrawal of ancillary proceedings, since the Revenue’s approach in this case demonstrates a continuing risk of such terms being mischaracterized as independent commercial bargains.
The decision also reaffirms two structural principles of continuing application: that CBIC circulars bind field formations and cannot be distinguished without sound legal basis, and that the High Court’s writ jurisdiction remains available, notwithstanding an alternate statutory remedy, where the impugned action is shown to be without jurisdiction on a pure question of law. The Court left open, without deciding, Tata’s alternate constitutional challenge to Section 7 read with Entry 5(e) of Schedule II, having granted relief on the narrower ground that no taxable supply arose on the facts, leaving the broader question of the provision’s validity for a future case.
The growing emphasis on precise classification and interpretation of statutory obligations under the Legal Analysis of the Income Tax Rules, 2026 reflects a broader trend in Indian tax jurisprudence, including recent judicial examination of the GST treatment of obligations to refrain from an act, tolerate an act, or permit a situation.
