Compensation for non-performance excluded from GST scope, interim relief against coercive actions granted.
In a significant ruling, the Delhi High Court has provided interim relief to Interglobe Aviation Limited, the operator of India's largest airline, IndiGo, by clarifying that compensation received for non-performance resulting in business loss does not qualify as "supply" under Section 7 of the Central Goods & Services Tax Act, 2017. This decision comes in light of a circular issued on August 3, 2022, specifically Clause 7 and 7.1, which were pivotal in the court's decision.
The case, titled Interglobe Aviation Limited v. Additional Commissioner CGST South Commissionerate & Ors., was heard by a Division Bench comprising Justices Nitin Wasudeo Sambre and Ajay Digpaul. The bench was tasked with determining whether the compensation received by Interglobe for non-performance, leading to business loss, could be deemed a "supply" under the GST Act.
The counsel for Interglobe Aviation, Mr. V. Lakshmikumaran, argued that the compensation does not fall within the ambit of "supply" as per the language of the aforementioned circular and Section 7 of the GST Act. He further contended that the order against the company was without jurisdiction.
After hearing the arguments, the court issued a notice to the respondents, represented by Mr. Aditya Singla, Senior Standing Counsel, and directed that no coercive action be taken against Interglobe Aviation until the final adjudication of the matter. The court observed that, prima facie, the compensation was received for non-performance and not as a service or supply, aligning with the circular's clarification.
The matter is scheduled for further hearing on August 31, 2026, with the court's interim order offering relief to other businesses facing similar disputes over GST applicability on compensation for non-performance.
Bottom line:-
Compensation received for non-performance resulting in business loss cannot be termed as "supply" under Section 7 of the Central Goods & Services Tax Act, 2017, in light of Circular dated 3rd August, 2022, particularly Clause 7 and 7.1.
Statutory provision(s): Central Goods & Services Tax Act, 2017 Section 7, Circular dated 3rd August, 2022, Clause 7 and 7.1.
