Delhi HC Grants Relief To IndiGo In Rs 458 Crore GST Case

IndiGo has received interim relief from the Delhi High Court in a GST dispute linked to compensation received from a foreign aircraft engine manufacturer.

The Delhi High Court directed the GST department not to take any coercive action against InterGlobe Aviation, the parent company of IndiGo, over a GST demand of around Rs 458 crore.

The dispute is related to compensation that IndiGo received from an overseas engine supplier after some aircraft engines developed faults during 2018-19 and 2019-20.

Because of the engine problems, several aircraft had to be grounded, leading to losses for the airline.

To compensate for these losses, the foreign supplier issued credit notes worth around Rs 2,000 crore to IndiGo.

The airline argued that this amount was purely compensation for business losses and not payment for any service.

However, GST authorities said the compensation should be treated as payment for a taxable service.

According to the department, IndiGo had effectively agreed to “tolerate” the engine performance issues in return for compensation, making it liable for GST under the reverse charge mechanism.

IndiGo challenged this interpretation in court. The airline said GST had already been paid when the aircraft and engines were imported into India.

It argued that the later compensation only covered operational losses caused by engine failures and did not create any new taxable transaction.

The airline also referred to a 2022 CBIC clarification, saying compensation or damages paid because of a contractual breach cannot automatically be treated as payment for “tolerating” a breach.

IndiGo argued that the contract was meant for performance, not for non-performance.

During the hearing, IndiGo’s counsel told the court that the company was financially strong and there was no risk to government revenue. The counsel said the airline pays more than Rs 20,000 crore annually and was not a “fly-by-night operator.”

The High Court observed at the preliminary stage that the amount received by IndiGo appeared to be compensation and not “supply” under GST law.

Based on this observation, the court restrained the tax department from taking coercive action against the airline until the next hearing.