The Bombay High Court on Thursday quashed and set aside a show cause notice issued in 2022 to Tata Sons for a demand of Rs 1,524 crore as Integrated Goods and Service Tax (IGST). The division bench of Justices Girish Kulkarni and Aarti Sathe agreed with Tata Sons that the final settlement in 2017 and Docomo's withdrawal of proceedings filed earlier in UK courts did not constitute any 'independent agreement' to mean 'supply of services' that would attract the CGST Act.
Background of the Case
The IGST demand was sought on damages worth over Rs 8,400 crore that Tata Sons, the holding company of the Tata Group, paid in 2017 to Japanese telecom company Docomo. These damages followed the settlement of disputes arising from a 2009 Share Holders Agreement (SHA) between the two companies. The court held that the Directorate General of GST Intelligence was not justified in proposing to levy IGST on the settlement of an arbitral award in proceedings initiated by Docomo.
Department's Stand
On February 15, 2022, the department claimed that the damages, interest, legal, and arbitration costs paid to Docomo on October 30, 2017, and November 7, 2017, under an arbitral award, attracted GST under the Goods and Services Tax Act, 2017. Tata Sons moved the High Court in 2023 to challenge the demand as absurd, arbitrary, and without authority.
Arguments Presented
Tata's senior counsel Arvind Datar argued that treating damages awarded through a judicial exercise as 'consideration or transaction value of supply' to attract GST would be quite absurd. On the other hand, Additional Solicitor General Anil Singh, representing the Centre, opposed the plea, stating that the consent terms implied a new agreement.
The High Court, however, ruled in favor of Tata Sons, emphasizing that the settlement of an arbitral award does not amount to a supply of services under GST law. This decision provides significant relief to Tata Sons and clarifies the tax treatment of arbitral settlements.
