Arbitral award satisfaction and incidental waiver of enforcement do not amount to taxable supply absent an independent agreement for consideration.

Settlement terms recording satisfaction of an arbitral award for breach-related damages, and the creditor's agreement not to continue execution or enforcement, are not by themselves a taxable supply under section 7 of the CGST Act read with Entry 5(e) of Schedule II. The payment reflected satisfaction of the decretal liability, not a fresh commercial bargain or separate consideration for tolerating, refraining from, or doing an act. Incidental non-pursuit of enforcement after satisfaction was not independent for consideration. The analysis also notes that CBIC circulars on liquidated damages support the view that compensation for breach is not taxable as supply absent a separate agreement.

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Issues: Whether the settlement recorded in the consent terms before the Delhi High Court, by which the award debt was satisfied and the award creditor agreed not to pursue execution or enforcement proceedings, amounted to a taxable supply of services under section 7 of the CGST Act read with Entry 5(e) of Schedule II.

Analysis: The payment in question represented damages awarded for breach of contract under the arbitral award and its judicial enforcement. The consent terms did not create a fresh commercial bargain independent of the award; they only recorded the mode of satisfaction of the decretal liability and the natural consequence that collateral enforcement proceedings would not continue once the award stood satisfied. Section 7 of the CGST Act requires a supply made for consideration in the course or furtherance of business, and Entry 5(e) of Schedule II applies only where there is an independent agreement to refrain from an act, tolerate an act, or do an act for consideration. The Court held that no such independent agreement or separate consideration existed here. The alleged forbearance by the award creditor was incidental to satisfaction of the award and could not be recharacterised as a taxable service. The CBIC circulars on liquidated damages and similar payments also supported the position that mere compensation for breach is not consideration for supply unless backed by a separate agreement.

Conclusion: The settlement did not amount to supply under section 7 of the CGST Act and the proposed IGST demand on that basis was without jurisdiction. The impugned intimation and show cause notice were liable to be quashed in favour of the petitioner.

Ratio Decidendi: Satisfaction of an arbitral award for damages, and the incidental withdrawal or non-pursuit of execution proceedings consequent upon such satisfaction, does not constitute an independent agreement to tolerate or refrain from an act for consideration under Entry 5(e) of Schedule II to the CGST Act.

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