GST Not Leviable on Arbitral Award Settlement Payment
“Whether the settlement between the parties in the proceedings filed by Docomo under Sections 47 and 48 of the Arbitration and Conciliation Act, 1996 (ACA), under which the arbitral award for damages stood settled between the parties, would amount to “supply” within the definition of Section 7(1) of the CGST Act?”
whether the parties settling the arbitral award in question in enforcement
proceedings filed before the Delhi High Court under Sections 47 and 48 of
the ACA when incorporated Clause 7 (supra) in the consent terms in regard to
the proceedings before the UK and US Courts, would at all attract Section 7 of
the CGST Act. In our opinion, the answer would certainly be in the negative, as
would be clear from the following discussion which would lead us to the said
conclusion.
In the facts of the present case, the parties merely recording in the terms, the conditions towards satisfaction of the decree of the nature as agreed in Clause 7 (supra) of the consent terms that the collateral proceedings would not be pursued for the full and final satisfaction of the award being worked out, this being considered to be supply of services, itself is untenable considering the purport of the provisions of Section 7 read with Entry 5(e) of Schedule II.
In the aforesaid circumstances, the position in law is clear that when damages were awarded by the arbitral tribunal in favour of Docomo, being compensation for the injury which it had suffered on account of breach of contract by petitioner-Tata. Such compensation was not being granted by reason of any different obligation on the part of petitioner-Tata, as Docomo became entitled to such compensation, only on being determined and awarded by the arbitral tribunal. Thus, as held in Iron and Hardware (India) Co. (supra), no pecuniary liability had arisen till the arbitral tribunal had determined, that Docomo complaining of the breach was entitled to damages, and for such reason when damages were assessed, the arbitral tribunal was not ascertaining the pecuniary liability otherwise than the claim for damages. Hence, till such determination by the arbitral tribunal, there was no liability on Tata to pay any such amount as damages. Such was the legal character of the determination in the arbitral proceedings, i.e., the arbitral award bringing about a consequence that the claim for damages for breach of contract was not a claim for a sum which was ipso facto due and payable on the date of alleged breach and it was only after the determination by the Tribunal, on the proof of such breach, the damages being quantified and the entitlement of Docomo as recognized by the award was brought into existence. Thus, for such reason in the context of applicability of provisions of Section 7(1)(c) read with Entry 5(e) of Schedule II of CGST Act, there was no scope for the Designated Officer to read any independent contract between the parties whereby reciprocal obligations, dehors the arbitral proceedings and the satisfaction of the award by payments made by Tata to Docomo could at all be inferred or created.
On 25.3.2009, the Tata Sons and Docomo had Shareholders Agreement and acquired 26% of equity capital of TTSL.
LCIA passed the arbitral award dated 22.6.2016 for damages against Tata. In the enforcement petition of the arbitral award, the consent terms were filed and by the order dated 28.4.2017 the Delhi High Court declared the Award as decree. Accordingly, Tata deposited Rs.8,450/- crores in the Delhi HC.
However, the service tax was levied on the damages paid by Tata to Docomo on the ground of reverse charge basis as the said service was considered to be an import of service.
Judgment dated 30.4.2026 of the Division Bench of the High Court of Bombay in Writ Petition No.4914 of 2022 of Tata Sons Private Limited Vs. Union of India and others
