The Delhi High Court has granted interim relief to IndiGo in a major Goods and Services Tax dispute involving a demand of nearly ₹458 crore, offering temporary protection against any coercive recovery action by tax authorities.
The case centres around compensation received by the airline from an overseas aircraft engine supplier after several engines allegedly malfunctioned during the financial years 2018-19 and 2019-20. According to the airline, the technical failures resulted in multiple aircraft being grounded, leading to operational disruption and significant financial losses.
A Division Bench comprising Justices Nitin Wasudeo Sambre and Ajay Digpaul observed during the hearing that the amount received by the airline appeared, at least prima facie, to be compensation and not payment for any taxable “supply” under GST provisions.
IndiGo argues payment was compensation, not taxable service
InterGlobe Aviation, the parent company of IndiGo, challenged the GST demand by arguing that authorities had wrongly interpreted the compensation as consideration for a service rendered to the foreign supplier.
According to Aviation JETA, the airline maintained that the payments were made solely to offset losses arising from engine failures, grounded aircraft, and reduced flying hours. According to IndiGo, there was no service agreement or arrangement under which it had provided any taxable service to the overseas company.
During proceedings, counsel appearing for the airline informed the Delhi High Court that Integrated GST had already been paid at the time of importing the aircraft and engines into India. The airline further stated that after recurring technical issues emerged, a supplementary agreement was signed with the engine supplier, following which credit notes worth nearly ₹2,000 crore were issued to compensate for operational losses and business disruption.
Also Read | Delhi HC raps WFI, seeks Vinesh Phogat’s entry into Asian Games trials
GST authorities invoke reverse charge mechanism
According to Aviation JETA, the tax authorities, however, argued that by accepting compensation, IndiGo had effectively agreed to “tolerate” deficiencies or non-performance by the supplier, bringing the transaction within the scope of taxable services under the reverse charge mechanism. Officials claimed the arrangement fell under provisions relating to agreements to tolerate an act or situation, making the payment liable for GST.
IndiGo rejected this interpretation and cited provisions of the Central Goods and Services Tax Act along with a 2022 circular issued by the Central Board of Indirect Taxes and Customs. The airline argued that compensation arising from breach of contract or operational failure cannot automatically be categorised as consideration for a service.
Also Read | Centre to SC: Will bring back 5 deported to Bangladesh, verify citizenship
Court halts coercive action until next hearing
According to Aviation JETA, the High Court issued notice in the matter and granted interim protection to the airline. The Delhi High Court directed GST authorities not to initiate coercive recovery proceedings against IndiGo until the matter is taken up again after the court vacation.
