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Informist, Friday, May 1, 2026

MUMBAI – The Bombay High Court has set aside integrated goods and services tax demand of INR 15.24 billion on Tata Sons Pvt. Ltd. over payments made to NTT Docomo Inc. pursuant to an arbitral award, holding that such payments do not constitute "supply" under GST law. Under section 5 of the Integrated Goods and Services Tax Act, 2017, IGST is levied on supply of services.

A division-bench of justice G.S. Kulkarni and justice Aarti Sathe said the settlement of an arbitral award, including consent terms recorded during enforcement, was a consequence of satisfying a decree and not an independent agreement involving consideration. It rejected the tax department's view that Docomo had provided a service by agreeing to refrain from or tolerate an act by withdrawing enforcement proceedings.

The dispute relates to a 2016 London arbitral award of about $1.17 billion in favour of Docomo following the breakdown of its shareholders' agreement with Tata Teleservices. The share holder agreement between Tata Sons and Docomo provided that if Tata Teleservices was unable to fulfill certain terms of the contract, Tata Sons would find a purchaser for Docomo's stake in Tata Teleservices.

Since Tata Teleservices was unable to fulfill the said terms, Tata was told to find a buyer for Docomo's shares. Tata was unable to find a purchaser, which led to a dispute between the parties. The companies approached an arbitral tribunal to settle the dispute.

To settle the dispute, the companies filed consent terms before the London tribunal. The arbitral proceedings culminated in an unanimous arbitral award under which Tata Sons was liable to pay $1.17 billion in damages, $65 million in interest, 119,012.6 pound sterling in arbitration costs, and 1.07 billion Japanese yen in legal costs.

While enforcing the award in 2017, the Delhi High Court recorded consent terms under which Tata deposited around INR 84.50 billion, following which Docomo withdrew enforcement actions in overseas jurisdictions.

In 2017, the dispute turned on whether the payment made by Tata Sons to NTT Docomo could be treated as a taxable "service" under GST, when Directorate General of GST Intelligence, Mumbai Zonal Unit, issued a communication to Tata Sons to enquire about levy of Service Tax on such amounts being paid by Tata to Docomo. After communication between the tax authorities and Tata Sons till February 2018, the matter stagnated and no communicationwas received by Tata Sons thereafter.

Tata Sons approached the Bombay high court in 2023 after the tax authorities stopped communication with them. Tata Sons questioned the levy of tax on the payment made by them to Docomo on the ground that there was no underlying service.

On Jul. 26, 2023, Directorate General of GST Intelligence, issued a show-cause notice to Tata Sons proposing to levy GST of about INR 15.24 bln on payments made to NTT Docomo pursuant to an arbitral award. The notice argued that Docomo, by agreeing to suspend and withdraw enforcement proceedings after receiving the payout, had provided a taxable service under GST by "tolerating" an act, and sought to tax the transaction at the hands of Tata Sons.

In the Bombay High Court, tax authorities argued that by agreeing to withdraw legal proceedings after receiving the money, Docomo had effectively provided a service--namely, agreeing to refrain from further action.

The court rejected this view, saying the payment was not part of any fresh commercial arrangement. Instead, it arose from an arbitral award and its enforcement, which is a legal process. When a court directs payment of damages, and the receiving party withdraws proceedings after getting the money, it is the natural consequence of settling that dispute—not a separate service being offered.

It emphasised that GST would apply in such cases only if there is an independent agreement where one party is specifically paid to tolerate or refrain from doing something. That requires a clear contractual understanding and a defined consideration for that obligation. In this case, there was no such standalone agreement—only compliance with a legal award.

The court also noted that tax authorities themselves, through circulars, have clarified that payments in the nature of damages were not taxable unless linked to a distinct agreement to provide a service. Since the Tata–Docomo payment was purely compensatory, it could not be treated as consideration for any service under GST.

Holding that neither the payment of damages nor the withdrawal of proceedings could be treated as supply of services, the court quashed the intimation and show-cause notice issued by tax authorities.  End

Reported by Prateem Rohanekar

Edited by Akul Nishant Akhoury

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