Facts of the Case:

In this case, pursuant to a Shareholders’ Agreement (SHA), the Japanese company NTT Docomo acquired 26% equity share capital in Tata Teleservices Limited (TTSL). Under the SHA, Tata had undertaken certain obligations in favour of Docomo, including an exit mechanism. The agreement provided that if TTSL failed to satisfy the “Second Key Performance Indicators”, Tata would be obligated to find a buyer for Docomo’s shares at a predetermined “Sale Price”.

As TTSL failed to meet the agreed performance indicators, Docomo issued a Sale Notice dated 7 July 2014 requiring Tata to procure a buyer for its shares. Tata, however, failed to comply with this obligation. Consequently, Docomo invoked arbitration proceedings before the London Court of International Arbitration (LCIA) on 3 January 2015 alleging breach of contractual obligations by Tata.

The arbitral tribunal passed an award directing Tata to pay damages, interest, arbitration costs and legal costs to Docomo. Thereafter, Docomo initiated enforcement proceedings before the Delhi High Court under Sections 47 and 48 of the Arbitration and Conciliation Act, 1996 for enforcement of the foreign arbitral award in India.

During the pendency of enforcement proceedings, Tata and Docomo entered into consent terms before the Delhi High Court. By order dated 28 April 2017, the Delhi High Court declared the arbitral award enforceable in India and held that the award would operate as a deemed decree of the Court. Pursuant thereto, Tata deposited approximately ₹8,450 crores with the Registry of the Delhi High Court, which amount was permitted to be withdrawn by Docomo in full and final satisfaction of the award. Docomo also agreed not to pursue execution/enforcement proceedings initiated before courts in the United Kingdom and the United States.

Subsequently, GST authorities issued an intimation alleging that by agreeing not to pursue further proceedings and by tolerating Tata’s contractual default, Docomo had supplied a service falling under Entry 5(e) of Schedule II of the CGST Act, namely “agreeing to the obligation to refrain from an act or to tolerate an act or situation”. Since Docomo was located outside India, the department treated the transaction as an “import of service” and sought to levy IGST on Tata under the reverse charge mechanism.

Issue:

Whether the settlement recorded before the Delhi High Court in enforcement proceedings relating to a foreign arbitral award, whereby Docomo agreed not to continue foreign execution proceedings after receiving the award amount, constituted an independent agreement amounting to “supply of services” under Section 7(1)(c) read with Entry 5(e) of Schedule II of the CGST Act. Whether damages awarded in arbitral proceedings for breach of contract could be treated as consideration for tolerating an act or refraining from an act so as to attract GST liability.

Held That:

The Bombay High Court held that the damages awarded by the arbitral tribunal to Docomo were purely compensatory in nature and represented compensation for injury suffered on account of Tata’s breach of contractual obligations. Such damages were not consideration for any independent contractual obligation undertaken by Docomo.

The Court observed that under settled principles of law, a claim for damages does not become a debt payable merely upon breach of contract. Liability arises only after adjudication and quantification by a competent adjudicatory forum. In the present case, Tata became liable to pay damages only upon determination by the arbitral tribunal. Therefore, the award amount retained the legal character of damages and could not be transformed into consideration for a taxable supply.

The Court further held that the consent terms recorded before the Delhi High Court did not create any fresh or independent agreement between Tata and Docomo. Docomo’s decision not to continue execution proceedings in foreign jurisdictions was merely incidental and consequential to receipt of the arbitral award amount in full satisfaction. Such withdrawal or non-pursuit of enforcement proceedings could not be construed as a separate agreement to tolerate an act or refrain from an act.

The Court categorically rejected the department’s attempt to infer reciprocal obligations constituting a supply of service under Entry 5(e) of Schedule II. It held that there was no independent arrangement dehors the arbitral proceedings which could justify levy of GST or IGST.

Accordingly, the Court held that satisfaction of an arbitral award pursuant to judicial enforcement proceedings does not amount to a “supply” under Section 7 of the CGST Act. Neither the payment made by Tata to Docomo nor Docomo agreeing not to pursue execution proceedings constituted supply of services. Consequently, IGST liability under reverse charge on the alleged import of service was held unsustainable and the proceedings initiated by the GST department were quashed.

Case Name: Tata Sons (P.) Ltd. v. Union of India dated 30.04.2026

To read the complete judgement 2026 Taxo.online 1118