AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 126
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....eptember 2022 (Impugned Intimation) and (ii) the show cause notice dated 26 July 2023 (Impugned Show cause Notice) issued by the Joint Director of the Directorate General of GST Intelligence, Mumbai Zonal Unit whereby a demand of Rs.1524 crores (Rs. 15,24,35,20,405/-) towards payment of Integrated Goods and Service Tax (IGST) is sought to be levied on the petitioner. 3. Briefly stated, the petitioner's case is : The petitioner-Tata Sons Private Limited (for short "Tata") is inter alia the principal investment holding company of the Tata Group, as also the promoter of its operating companies, and the owner of the Tata brand and trademarks. It is principally engaged in the business of making and holding investments. 4. NTT Docomo Inc. ("Docomo"), a Japanese company, had invested in the shares of Tata Teleservices Limited (for short "TTSL") along with Tata, such relationship between the parties was governed by a Shareholders agreement. TTSL and Docomo entered into a Shareholders Agreement (hereinafter referred to as "SHA") on 25 March 2009 inter alia for providing telecommunication services to their customers. The SHA sets out the terms and conditions of the share transfer betwe....
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....MZU/I&S'A'/12(1)36/2017/4870 stating that an enquiry was proposed to ascertain facts relating to levy of Service Tax on such amounts being paid by Tata to Docomo. Tata was called upon to submit documents including the SHA with Docomo, details of damages paid/payable, copies of any invoice/debit note raised and service tax paid on the damages. Tata was also directed to depute an authorized representative to appear and tender evidence on 10 October 2017 in relation to the said matter. 8. In compliance thereto, Mr. Eruch N. Kapadia, the Chief Financial Officer of Tata appeared before the authorities on 10 October 2017 and submitted the documents as called upon. It was informed to the officials that the amount of damages had been deposited with the Registry of the Delhi High Court on 29 July 2016. 9. Meanwhile, in terms of the order dated 28 April, 2017 passed by the Delhi High Court, and upon receipt of approval from the Competition Commission of India and the relevant tax certificates, the amounts awarded by the Arbitral Tribunal were remitted to Docomo on 30 October 2017 and 7 November 2017. 10. On 3 November 2017, Tata informed the department that the Service Tax Departmen....
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....yance pending consideration of the representation. However, Tata has not received any response from the office of the Respondent No. 2 on such representation till date. 14. It is Tata's case that to its surprise, by letter dated 15 February 2022, respondent No. 3 informed Tata that the payments made to Docomo on 30 October 2017 and 7 November 2017 under the arbitral award, namely, the damages, interest, legal costs and arbitration costs attracted GST under the Goods and Services Tax Act, 2017. Tata was directed to depute its representative to appear before respondent no. 3 on 23 February 2022. Accordingly, Tata's authorized representative appeared before respondent no. 3 on 23 February 2022 and 22 March 2022. 15. Thereafter, vide letter dated 4 April 2022, Tata informed respondent No. 3 that all the information pertaining to the transaction was provided by Tata to the respondents. Tata inter alia requested respondent no. 3 to provide any communication received by Respondent No. 3 from the office of Respondent No. 2 on the representation filed by Tata dated 27 December 2019. 16. On the aforesaid conspectus, on 28 September 2022, an intimation of tax ascertained as payable u....
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.... February 2018, which was furnished by Respondent No. 3 vide letter dated 21 April 2023. Thereafter, Tata by its letter dated 16 May 2023 addressed to respondent no. 3, sought confirmation as to whether any further correspondence existed on the issue subsequent to the said Office Memorandum between CBIC and the office of Respondent No. 3, and requested copies thereof, if any. In the absence of any response from the office of Respondent No. 3 to the said letter dated 16 May 2023, Tata submitted its detailed reply to the intimation under Form DRC-01A under its letter dated 31 May 2023, as per the directions of this Court including on jurisdiction. However, after Tata filed its reply dated 31 May, 2023, on 3 June 2023, Tata received a communication dated 30 May 2023 from Respondent No. 3, which was in response to Tata's letter dated 16 May 2023, inter alia stating that there was no other correspondence in relation to the Office Memorandum dated 21 February 2018 and further directed Tata to file its reply 19. Thereafter, the present writ petition came to be listed for hearing before a co-ordinate Bench of this Court on 6 June 2023, to which one of us (G.S. Kulkarni, J.) was a member....
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....ure of Certiorari or any other writ, order or direction under Article 226 of the Constitution of India calling for the records pertaining to the petitioner-Tatas case and after going into the validity and legality thereof be pleased to quash and set aside the intimation under Form DRC-01A bearing F. No. DGGSTI/MZU/I&IS 'A'/12(4)12/2017 /3900 dated 28.09.2022 (Exhibit T) issued by the Respondent No. 3; (b) that this Hon'ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ or order or direction under Article 226 of the Constitution of India ordering and directing the Respondents themselves, their officers and subordinates to forthwith withdraw the intimation under Form DRC-01A bearing F. No. DGGSTI/MZUI&IS 'A'/12(4)12/2017 3900 dated 28.09.2022 (Exhibit T) issued by the Respondent No. 3; (c) that this Hon'ble Court be pleased to issue a writ of prohibition restraining the Respondents from giving effect to and/or proceeding with the intimation under Form DRC-01A bearing F. No. DGGSTI/MZU/I&IS *A'/12(4)12/2017/3900 dated 28.09.2022 (Exhibit-T) issued by the Respondent No. 3; (ca) that this Hon'ble ....
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....ents submitted that the same is wholly academic and does not arise for consideration in the absence of any factual foundation. Affidavit-in-Rejoinder 29. Tata has filed a para-wise Affidavit-in-Rejoinder dated 25 January 2023 to the Affidavit-in-Reply filed on behalf of the Respondents dated 11 January 2023 (supra), reiterating its case in the Writ Petition in relation to the impugned action of levying tax on the settlement of the arbitral award. Tata has also justified its challenge to the validity of the provisions of the GST Act, as assailed in the petition. It is further contended that the entire action of the respondents in initiating recovery proceedings in respect of the subject matter is wholly without jurisdiction. Tata has denied the contention that the petition is premature or not maintainable. Tata has also reiterated its contention regarding the Circular, namely, Circular No. 178/10/2022-GST dated 3 August, 2022 (supra) and its binding nature. Submissions on behalf of the petitioner-Tata 30. Mr. Datar, learned Senior Advocate appearing for the petitioner-Tata has made the following submissions: (i) It is submitted that it is clear from the facts th....
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....tion proceedings, Docomo had "tolerated this act", i.e., the breach, which has attracted a levy of GST under Entry No. 5(e) read with Schedule II of the CGST, 2017, which provides for "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act". It is submitted that ex-facie this was misconceived/ wrong, as Docomo had not tolerated the breach and finally was awarded damages of Rs. 8450 crores, which was enforced by the Delhi High Court as a decree of the Court. (iv) Mr. Datar has next submitted that a Writ Petition was filed for the reason that Circular No. 178/10/2022-GST dated 3 August, 2022 had declared that the damages are not taxable, as despite bringing this to the notice of the GST authorities, as directed by this Court, the department proceeded to issue the impugned show cause notice dated 26 July, 2023 once again seeking to levy IGST on the amount of damages. It is submitted that accordingly, the writ petition was amended to quash the show cause notice. Show cause notice liable to be quashed contrary to Board Circulars (v) Mr. Datar would submit that the show cause notice would be liable to be quashed....
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....would be absurd to treat damages as consideration or the transaction value of supply. This, particularly, when a decree for damages is a consequence of a breach of contract, hence, it cannot be treated as "consideration" or transaction value for supply of services. (ix) Mr. Datar would submit that apart from the binding nature of the circulars and the settled principles of law in that regard as laid down in several decisions of the Supreme Court and of this Court, it is submitted that having due regard to the statutory provisions, IGST can be levied only if there is a supply under sections 7 and 7(1A) of the CGST Act, 2017, and it can only be on the value of the taxable supply. It is submitted that under section 15 of the CGST Act, the value is the price actually paid or payable for the supply of goods or services. Damages awarded by an Arbitral Tribunal and affirmed by the High Court become a "decretal amount", which can never be the transaction value or the price paid for supply of services of "tolerating an act" under Entry No. 5(e) of Schedule II of the CGST Act. (x) It is submitted that once Docomo has received the entire amount of damages post the award in p....
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....dated damages) would not change. The award of damages is to compensate the party to an agreement for the losses it had suffered on account of breach of the contract, and in this view of the matter, once there is adjudication of the damages and the liability to pay such damages is under an arbitral award, which is akin to a decree of the Court, there is no question of the award per se amounting to any supply of service. (xv) It is next submitted that even if the award is compromised under certain conditions, which would be to do away with the enforcement and recovery proceedings in the other jurisdiction, it would not alter the legal character of the award i.e. the damages being granted in the arbitral proceedings. (xvi) It is next submitted that the recovery proceedings under the award which are permissible to be instituted in different jurisdictions whenever enforcement and recovery are possible, are a consequence or incidental to the award and are not independent proceedings, much less, categorized as a supply of service in the event of any covenant to dispose of such incidental proceedings. This is an error which the jurisdictional officer has committed in issu....
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....res adjudication and the adjudicating authority is competent to determine the issue of taxability as well as jurisdiction, which ought to be raised by the petitioner-Tata. It is submitted that on this count alone, the petition is not maintainable and is liable to be dismissed. In supporting such submissions, reliance is placed on (i) State of Orrisa vs. Mesco Steel Ltd. (2013) 4 SCC 340, (ii) Union of India vs. Bajaj Tempo Ltd. & Ors. (1998) 9 SCC 281; (iii) Special Director vs. Mohd. Ghulam Ghouse (2004) 3 SCC 440; (iv) Union of India vs. Kunisetty Satyanarayana (2006) 12 SCC 28; (v) Om Drishian International Ltd vs. Additional Director, Directorate of Revenue Intelligence and Anr. 2021 SCC OnLine Bom 8036; (vi) Union of India vs. Coastal Containers Transporters Association 2019 (22) G.S.T.L. 481 (SC); (vii) State of Madhya Pradesh & Ors. vs. Commercial Engineers and Body Building Co. 2022 SCC OnLine 1425; (viii) Oberoi Construction Ltd. vs. Union of India & Ors. 2024 SCC OnLine Bom 3508; (ix) United Bank of India vs. Satyavati Tondon & Ors. 2010 (8) SCC 110. 33. It is next submitted that Docomo an....
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....e of hearing at the pre-show cause notice stage, the complete consent terms were not available, and the petitioner-Tata had referred to the orders passed by the Delhi High Court dated 28 April 2017. 36. Mr. Singh would submit that it is the case of the department that the following contents of the consent terms imply a new and independent agreement and the obligations thereunder go beyond the award inasmuch as:- "3. The obligations of the Respondent hereunder shall further be subject to receipt of approval of the Competition Commission of India and (it) receipt of the Withholding Tax Certificate (as defined hereinafter) The petitioner will apply to the Indian Income Tax authorities to obtain the withholding tax certificate ("Withholding Tax Certificate!) in relation to payments under the Award based on which Respondent will remit the Funds, after deduction of taxes, if any, to Designated Bank Account. The petitioner agrees that the amount of Rs. $450,00,00,000 (Rupees Eight Thousand Four Hundred and Fifty Crore Only) along with accrued interest which amounts to a total of Rs. 8,730,59.83:623 (Rupees Eight Thousand Seven Hundred Thirty Crore Fifty Nine Lakh Eighty Three ....
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....aterialised accounts of the Respondent and/or its nominees. 5. In light of the withdrawal of the objections of the Respondent, this Honourable Court may be pleased to declare that the Award is enforceable in India and shall operate as a deemed decree and this Honourable Court shall proceed to execute the same, subject to the ruling on the objections of RBI as raised in RBI's Application for Intervention in these proceedings (and for that purpose the Parties agree not to object to the intervention of RBI). 6. The petitioner agrees and undertakes that the enforcement of the Award in India, and this deemed decree, against the Indian assets of Tata will be limited to the monies deposited (along with interest accrued thereon) in this Hon'ble Court by the Respondent only so long as Respondent complies with its obligation to make up for any difference between the Deposit and the Finds in terms of paragraph 3 of these consent terms. 7. The petitioner undertakes to this Honourable Court that shall suspend proceedings initiated against the Respondent which are currently pending in United Kingdom [Claim No CL-2016-000428 in the High Court of Justice, Queen's Bench D....
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.... is submitted by Mr. Singh that the consent terms introduced further contractual bargains between the parties which are not limited to merely complying with the award as contended by the petitioner-Tata. It is submitted that apart from the detailed modalities of payment being agreed, one of the most important facets of the consent terms, is to the effect that, despite the award being enforceable, Docomo had agreed to forbear and/or refrain from and/or tolerate the non payment of monies for a period of six months, that is the suspension period. It is submitted that such suspension period is beyond the award and the same is nothing but a new contract between these parties whereby one party has agreed to refrain or tolerate non-payment for a period of six months without precipitating further action. It is this agreement between the parties which, according to Mr. Singh, squarely falls within Clause 7.1.6 of the 2022 Circular. It is thus submitted that the consent terms go beyond the award and if it was simply the award which was to be complied, then there was no need for consent terms. 38. It is next submitted that the show cause notice specifically refers to the consent terms and ....
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.... disposal of the enforcement/execution petition filed by Docomo in terms of the said settlement. The consent terms as entered between the parties were to the following effect: "26. The consent terms arrived at between the parties read as under: In the interest of putting an end to a dispute that had arisen between the Parties and in the public interest of preserving a fair investment environment in India, the Parties to the above Petition ("Parties") submit that this Honourable Court be pleased to pass an order in terms of these Consent Terms so as to put an end to the issues and differences between the Parties relating to the arbitration award dated June 22, 2016 passed by the Arbitral Tribunal in London, United Kingdom in LCIA Case No. 152896 ("Award"): 1. The Respondent has always been, and remains committed to performing its contractual obligations under the Shareholders' Agreement dated March 25, 2009 ("SHA"). 2. In these circumstances although the Respondent believes it had grounds to resist enforcement of the Award as stated in its affidavit dated September 01 2016 "filed before this Hon'ble Court, as a gesture of good faith and in accorda....
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....ndent, by way of withdrawal or deposit from/into the Interim Account by the Respondent, and the deduction of tax, if any, shall be computed and withheld on such adjusted amount. 4. Subject to the ruling and directions of this Honourable Court, as provided in paragraph 3 above, the payment of the Funds, after deduction of taxes, if any, to the Designated Bank Account and other related actions shall be made in the following manner: 4.1 The Deposit is to be retained by the Registrar of this Hon'ble Court till requisite clearance from Competition Commission and the Withholding Tax Certificate as mentioned in these consent terms have been obtained. Once the requisite clearances/ certificate have been obtained the Deposit will be transferred to an account in the name of the Respondent ("Interim Account"). 4.2 Petitioner will then nominate an Authorised Dealer ("AD") for remittance of Funds after deduction of taxes, if any, to the Designated Bank Account. 4.3 The petitioner undertakes that it shall, simultaneously with the receipt of the Funds, after deduction of taxes, if any, in the Designated Bank Account, complete the process of debiting it....
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....ings initiated against the Respondent in relation to the SHA and/or the Award, including aforementioned proceedings in the United Kingdom and aforementioned proceedings in the United States of America within one week thereof. In the event of the petitioner-Tata not receiving payment of the Funds, after deduction of taxes, if any, in the Designated Bank Account of the petitioner-Tata within the Suspension Period, the petitioner shall be free to pursue the UK and US enforcement actions. 8. The petitioner undertakes to this Honourable Court that it shall not initiate any further proceedings in relation to the SHA and/or the Award during the Suspension Period, or thereafter, if the Funds, after deduction of taxes, if any, are received during the Suspension Period. 9. The Parties agree that upon receipt of the Funds, after deduction of taxes, if any, in the Designated Bank Account by the petitioner, and the credit of the Shares to dematerialised accounts of the Respondent and/or its nominees, as per paragraphs 3 and 4 above, the Award shall stand fully and finally satisfied and discharged and that the Parties shall have no outstanding claims against each other. ....
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....e the AT and was expressly negatived by the AT by a unanimous Award. The AT decided that since the sum awarded to Docomo was in the nature of damages and not the Sale Price of the shares the question of having to seek the special permission of RBI did not arise If, enforcement of the Award, and the Court finds no impediment to its enforcement, then the Award which takes a view on the requirement of RBI's permission will be enforceable as such. RBI will be bound by such determination and cannot refuse permission. 44. To repeat, the AT has come to a definite conclusion that what has been awarded to Docomo is damages. It has given effect to the alternative mechanism envisaged by the parties under Clause 5.7.2 of the SHA. It is not even RBI's stand that any general or special permission of RBI would be required if what is being paid by Tata to Docomo is in the nature of damages. ...... 50. The Award is very clear on this issue. What was awarded to Docomo were damages and not the price of the shares. The order that that the share script must be returned to Tata was only incidental and, in fact, Docomo itself was not interested in retaining the share scrips. It could be....
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.... that have to be kept in view when examining whether the enforcement of the Award would be consistent with the public policy of India. 64. It appears to be a well settled legal position that parties to a suit, or as in this case, an Award, may enter into a settlement even at the stage of execution of the decree or Award. In The Oudh Commercial Bank Ltd. v. Thakurain Bind Bist Kuer (1939) 41 Bom LR 708, the Privy Council held that independent of Order XXIII Rule 3 CPC, the provisions of Order XXI Rule 2 and Section 47 CPC would enable the executing Court to record and enforce a compromise. This was reiterated by the Supreme Court of India in Moti Lal Banker v. Mahraj Kumar Mahmood Hasan Khan AIR 1968 SC 1087. In N.K. Rajgarhia v. Mahavir Plantation Ltd. & Ors. (2006) I SCC 502, it was observed that "the court's freedom to act to further the ends of justice would surely not stand curtailed." The Court came to the conclusion that the compromise entered into between the parties during the execution proceedings was valid in law. Conclusion 65. The result is that: (i) IA No. 14897/2016 filed by RBI is dismissed. (ii) IA No. 2585 of 2017 is all....
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....dings instituted by it against Tata elsewhere under suspension and to ultimately withdraw them subject to compliance by Tata with its obligations under the Consent Terms. Docomo is also bound by its undertaking that it shall not initiate any further proceedings in relation to the SHA and/or the Award during the Suspension Period, or thereafter, if the Funds, after deduction of taxes, if any, are received during the Suspension Period. (x) Upon receipt of the Funds, after deduction of taxes, if any, in the Designated Bank Account by Docomo, and the credit of the Shares to dematerialised accounts of Tata and/or its nominees, as per paragraphs 3 and 4 of the Consent Terms, the Award shall stand fully and finally satisfied and discharged and that the Parties shall have no outstanding claims against each other. 66. Liberty is granted to both Tata and Docomo to apply to the Court in the event of any difficulty in complying with any of the directions. 67. The petition is disposed of in the above terms." (emphasis supplied) 43. On the aforesaid backdrop, we now proceed to examine the question posed for consideration. 44. As noted hereinabove, on 28 Septem....
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.... ie. DoCoMo, shall be its usual place of residence, under Section 2(15) of the IGST Act, 2017. Since the company is incorporated in Japan, the location of the supplier will therefore be outside India. The location of the recipient of the supply, i.e. TSL is in India. Therefore, to determine the place of supply of this service, Section 13 of the IGST Act, 2017 will have to be referred. Sub-section (2) of Section 13 ibid states that the place of supply of services, except the services specified in sub-sections (3) to (13) of the said section, shall be the location of the recipient of the service. Since the supply of service viz. "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act", as specified in Schedule II of the CGST Act, 2017, is not covered under sub-sections (3) to (13) of Section 13 of the IGST Act, the place of supply in respect to such service shall be the location of the recipient of the service, i.e. TSL and since the location of the supplier of service is outside India and location of the recipient of the service is in India and the place of supply of service is in India, the said service shall be considered to be an ....
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....a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II", as Schedule II in Entry 5(e) treats supply of services to a party "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act." 46. Based on these provisions, the impugned intimation in paragraph 4.1 (b) to (e) inter alia recorded that it clearly appeared that the settlement of the arbitral award constituted supply in accordance with the provisions of sub-section (1) of Section 7 as referred to in Entry 5(e) of Schedule II. It was further recorded that Docomo, as part of the joint consent application filed before the Delhi High Court, had agreed to suspend and later withdraw its enforcement proceedings which it had initiated in the Courts in the UK and the US, threatening to attach properties of Tata's global companies like Jaguar, Land Rover and Tata Steel Europe and agreeing not to initiate any further proceedings in relation to the Shareholder Agreement (SHA) and/or under the award in question. This is stated to be appearing to be an activity in the nature of agreeing ....
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....iated against Tata which are currently pending in UK and in the US. DoCoMo has also agreed in the consent application to refrain from initiating any further proceedings against Tata in relation to the SHA and/or the Award. (d) Further, the act of DoCoMo also appears to be one of tolerance with respect to the breach of the SHA by Tata. The Arbitral Tribunal's ruling, which has now been enforced by the Delhi High Court, is categorical in stating that Tata has committed breach of contract and is liable to pay damages to DoCoMo. These damages appear to be in the nature of consideration for supply of service, from DoCoMo to TTSL, of tolerating the said breach. (e) It appears from the discussion in para (c) and (d) above that DoCoMo is making a supply of Tata Teleservices (TTSL), as per the definition of supply in Section 7 of CGST Act, 2017." (emphasis supplied) 47. Referring to the provisions of Section 13 of the IGST Act, 2017 which defines "Place of supply of services where location of supplier or location of recipient is outside India" as also, referring to the provisions of Section 2(11) of IGST Act defining "import of services" and Section 7(4) of IGS....
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.... is in India and the place of supply of service is in India, the said service shall be considered to be an import of service under sub-section (11) of Section 2 of the IGST Act, 2017. (c) As per sub-section (4) of Section 7 of the IGST Act, 2017, supply of services imported into the territory of India shall be treated to be a supply of service in the course of inter-state trade or commerce. Accordingly, as per sub-section (1) of Section 5 of the IGST Act, 2017, IGST is liable on such a supply. 4.3. Vide Notification 10/2017-Integrated Tax (Rate) dated 28.06.2017, the Central Government, in exercise of powers conferred by sub-section (3) of section 5 of the IGST Act, 2017, has notified that on any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient, the whole of integrated tax, leviable under section 5 of IGST Act shall be paid on reverse charge basis by the recipient. Therefore, it appears that TSPL is required to discharge the IGST liability on the above mentioned supply." (emphasis supplied) 48. The Intimation further records that the time of supply of the alleged services wou....
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....ssion and Withholding Tax Certificates from Income Tax Authorities are obtained. Once the requisite clearance/certificate has been obtained, the deposit will be transferred to an account in the name of the Respondent (ie. DoCoMo). Therefore, it appears that the date on which the amount, as specified in para 3 of the terms of consent, is debited from the bank account(s) of TTSL. shall be the time of supply of the service. (emphasis supplied) 49. On the aforesaid basis, it was asserted that Tata was liable to pay IGST amounting to Rs. 15,24,35,20,405/- on the payments made by Tata to Docomo amounting to Rs. 84,68,62,24,473/- and the same is recoverable from Tata in terms of Section 74(1) of the CGST Act. Accordingly, Tata was called upon to pay the amount of tax as ascertained along with the amount of applicable interest and penalty under Section 74(5) of the CGST Act by 6 October, 2022, failing which, a show cause notice shall be issued under Section 74(1) of the CGST Act. Also, it was recorded that in case Tata wishes to file any submissions against the above ascertained, the same be furnished by 6 October, 2022. The relevant extract in such context are required to be noted, ....
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.... and other grounds taken in the petition, the concerned authority will look into the same as per Section 74 of the CGST Act and inform the petitioner-Tata the outcome by communication in writing. 52. Tata, in its reply dated 31 May 2023 to the impugned intimation dated 28 September 2022, contended that - (i) The demand of GST on damages paid to Docomo under the arbitral award whose validity and enforceability was confirmed by the Delhi High Court, was illegal and contrary to CBIC Circular No. 178/10/2022-GST dated 3 August 2022, which clarified that damages for breach of contract do not fall within Schedule II Entry 5(e) of the CGST Act and are not consideration for supply; this position was reiterated in Circular No. 214/1/2023 dated 28 February 2023 clarifying that even under the pre-GST regime no service tax was leviable on such damages; Tata further recorded that CBIC had relied on CESTAT decisions holding no such tax was leviable, chose not to appeal adverse decisions, and withdrew pending Supreme Court appeals, treating proceedings as closed; hence, such circulars being binding on the Additional Director, the intimation was liable to be withdrawn. (ii) Ta....
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....deration for such act. It was contended that in the present case no independent contract existed whereby Docomo agreed to withdraw proceedings for consideration, making the allegation of "supply" erroneous; the circular clarified that toleration must arise from an independent agreement for consideration, whereas breach of contract merely gives rise to compensation for loss; the damages awarded by the arbitral tribunal and upheld by the Delhi High Court were compensation for breach and not consideration for any independent activity, and were paid because Docomo did not tolerate the breach. It was contended that the decisions of the CESTAT under Section 66E(e) of the Finance Act, 1994 in M/s South Eastern Coal Fields Ltd v. Commissioner of Central Excise And Service Tax, Raipur 2020 (12) TMI 912; Western Coalfields Ltd vs. Commissioner of CGST & Central Excise 2022 (9) TMI 741 and Dy. GM (Finance), Bharat Heavy Electricals Ltd. vs. Commissioner of Customs& Central Excise, Bhopal 2022 (9) TMI 1005 had held that no service tax is leviable on such damages, which position has been accepted by CBIC and applies equally under GST. (v) Tata contended that the impugned demand was uns....
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.... of the aggrieved party, and in cases of failure to discharge obligations resembling those created by contract, the injured party is entitled to receive the same compensation from the party in default as if such party had contracted to discharge it and had broken the contract. It was hence contended that payment of compensation to the aggrieved party does not imply any positive act of toleration of breach, and acceptance of damages cannot be construed as tolerating an act. Accordingly, the payment of damages by Tata to Docomo does not fall within the scope of Entry 5(e) of Schedule II of the CGST Act, and the impugned intimation suffered from a fundamental error in invoking GST provisions when the alleged activity does not qualify as "service" or "supply"; hence, the demand is contrary to the CGST Act and violative of Article 14 of the Constitution. On such proposition, Tata placed reliance on the decision of this Court in Bai Mamubai Trust vs. Suchitra 2019 (31) GSTL 193. (viii) Tata next contended that Section 74 of the CGST Act, which applies to cases involving fraud, willful misstatement, or suppression of facts, was inapplicable in the present case, as none of these e....
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....a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business. Section 7(1A) states that where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. (c) In the Instant case, DOCOMO, as part of its joint consent application filed in the Hon'ble High Court of Delhi, agreed to suspend and later withdraw its enforcement proceedings which it had initiated in the courts in the UK and the US, threatening to attach properties of Tata's global companies like Jaguar Land Rover and Tata Steel Europe. The act here being that of not continuing with the proceedings initiated against Tata which were currently pending In UK and in the US. The act of DOCOMO also appears to be one of tolerance with respect to the breach of the SHA by TSPL & others. Thus, from the above it appears to be an activity agreeing to an obligation of refraining from an act, the act here being that of not continuing with the proceedings initiated against Tata which were pendin....
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....greeing to refrain from act,ie, DOCOMO will not initiate any further proceedings in relation to the SHA and/or the Award during the Suspension Period and agreeing to unconditionally withdraw all the proceedings initiated against the Respondent. Schedule 11.1 11.3.). i] During the course of investigation, it appears that DOCOMO had tolerated the act of breach of the conditions laid down in the Agreement by and between TSPL, DOCOMO & TTSL against which DOCOMO received consideration in the form of damages from TSPL. ii). DOCOMO, as part of its joint consent application filed in the Hon'ble High Court of Delhi, agreed to suspend and later withdraw its enforcement proceedings which it had initiated in the courts in the UK and the US, threatening to attach properties of Tata's global companies like Jaguar Land Rover and Tata Steel Europe. The act here being that of not continuing with the proceedings initiated against Tata which were pending in UK and in the US. The act of DOCOMO also appears to be agreeing to obligations to refrain from act of legal proceedings with respect to the breach of the SHA by TSPL & others. 11.4. Thus, from the above it appea....
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....] of section 7 of the CGST Act, 2017 and the damages referred to herein above is the 'consideration' paid by TSPL to DOCOMO in the course and furtherance of their business. Thus, it appears that the said 'supply' by DOCOMO would fall within in the ambit of entry no. [e] of Sr. no. 5 of the Schedule - II to section 7 ibid as "supply of services viz. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act". As per para 7.1.1 of the said circular "It is common for the parties entering into a contract, to specify in the contract itself, the compensation that would be payable in the event of the breach of the contract. Such compensation specified in a written contract for breach of non-performance of the contract or parties of the contract is referred to as liquidated damages. Black's Law Dictionary defines "Liquidated Damages' as cash compensation agreed to be a signed, written contract for breach of contract, payable to the aggrieved party." From the above, it appears that the compensation paid by TSPL cannot be considered as liquidated damages as the said consideration was paid to DOCOMO after they had agreed to refra....
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....uld not have come to light. Further, the case is very clear and known to the noticee that he has paid the damage amount to DOCOMO. "The activity is considered as supply' by DOCOMO and the same would fall within in the ambit of entry no. [e] of Sr. no. 5 of the Schedule - II to section 7 ibid as "supply of services viz. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act"." Accordingly, TSPL was required to declare the value of service in GSTR-3B returns declaring the correct nature and correct value of the services received. Accordingly, as per explanation 2 to the Section 74 of the CGST Act, 2017, any failure to declare information required to be declared in statutory returns leading to non-payment of appropriate GST thereon, has to be taken as GST not paid by reason of suppression of facts. The said irregularities would not have come to light bot for the Investigations conducted by the department officers. 11.10. In view of the above facts, it appears that DOCOMO has rendered the supply vide their act of tolerance of the contractual Defaults by TSPL and refrained from Initiating any further proceedings against TSPL in ....
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....ction 7 read with Schedule II Entry 5(e). 56. Thus, the fundamental question which has arisen for determination is 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 Act 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. 57. Section 7 of the CGST Act falls under Chapter III - 'Levy and Collection of Tax'. Section 7 pertains to 'Scope of supply' which is required to be noted which reads thus: "Chapter III : Levy and Collection of Tax Section 7 : Scope of supply (1) For the purposes of this Act, the expression "supply" includes--- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) the activit....
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....fts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. 3. Supply of goods- (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. 4. Import of services by a 1 [person] from a related person or from any of his other establishments outside India, in the course or furtherance of business SCHEDULE II [See section 7] ACTIVITIES 1 [OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES ..... 5. Supply of services ..... (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; ..... (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and (emphasis supplied) 59. Having noted the provisions of the CGST Act, the relevant provisions of the IGST are also required to be noted: ....
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....be treated to be a supply of services in the course of inter-State trade or commerce. Section 13. Place of supply of services where location of supplier or location of recipient is outside India.--(1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. (2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services." 60. It is clear that the revenue has considered Clause 7 of the consent terms / settlement as brought about before the Delhi High Court between Tata and Docomo as supply of services, to the foreign recipient and hence attracting the provisions of the IGST Act as noted by us hereinabove. Considering the provisions of Section 20 of the IGST Act, which provide for 'Application of provisions of CGST Act' to the provisions of the IGST Act,....
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....applying the Indian law, namely, the ACA and recognition of the principles for award of damages under the Indian Contract Act form part of a legal scheme integral to the arbitral process. Conversely, if it were not so, even assuming that such award of damages was not in the arbitral proceedings but under a decree of a Civil Court in a civil suit, on the defendant not discharging its obligation under the decree, necessarily the decree would be subjected to execution under the provisions of Order XXI of the Code of Civil Procedure, 1908. Any settlement brought about thereunder necessarily becomes "integral to" and or "intricately connected", to the decree itself. The reciprocal obligation even in settlement of a decree necessarily emanates from a decree, which cannot be construed to be an independent agreement de hors the decree and/or alien to the decree itself. 63. Similarly, the proceedings which are incidental, integral to the execution of the decree and falling under the decree (here an arbitral award) also cannot be considered to be alien to the decree, as such proceedings certainly partake the character of the original/principal proceedings, namely, execution of a decree. F....
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.... Entry 5(e) of Schedule II. 66. The reason being Section 7 which defines 'Scope of supply' categorically provides that "supply" would inter alia include all forms of supply of goods or services or both of the nature such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for "a consideration" by a person in the course or furtherance of business. Coupled with this, in the present case what is being applied is the provision of Schedule II Entry 5(e) to the effect of which is "a party agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act". These provisions are being applied to the consent terms as entered between Docomo and Tata. In our view, considering as to what is provided by Entry 5(e), the same cannot be read beyond the purview and/or the context of principal provision, namely, Section 7, as noted by us hereinabove. Reading Entry 5(e) de hors the provision would amount to an erroneous reading of this provision, which are sought to be applied by the revenue. In the facts of the case, neither there is any independent agreement involving any consideration nor Clause 7 of the consent....
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.....K., was to realize the award amount. Attributing any other purpose remains to be an ingenuity without any basis the law could recognize, as nothing is brought on record much less any independent agreement de hors from what was inter se brought out between the parties i.e. Tata and Docomo in the enforcement proceedings. Hence, in the absence of any such independent contract creating rights and obligations which can stand independent of the award/decree, to label the proceedings before the Delhi High Court and the parties agreeing to settle the claim under the award being characterized as "supply" within the meaning of Section 7 of the CGST Act read with Entry 5(e) of Schedule II, in our opinion, is a fundamental flaw. Such approach on the part of respondent No.3-Joint Director, Directorate General of GST Intelligence, is wholly without jurisdiction and patently perverse. 69. In our opinion, if such logic as adopted by the Revenue in the present case if is accepted, in that event, the settlement of every money decree where parties are before the Court and agree to a course of action purely under the decree without creating any independent obligation, would be required to be regar....
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....n and not for getting anything in return from the buyers. Similarly, forfeiture of earnest money by a seller in case of breach of 'an agreement to sell' an immovable property by the buyer or by Government or local authority in the event of a successful bidder failing to act after winning the bid, for allotment of natural resources, is a mere flow of money, as the buyer or the successful bidder does not get anything in return for such forfeiture of earnest money. Forfeiture of Earnest money is stipulated in such cases not as a consideration for tolerating the breach of contract but as a compensation for the losses suffered and as a penalty for discouraging the non-serious buyers or bidders. Such payments being merely flow of money are not a consideration for any supply and are not taxable. The key in such cases is to consider whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. If the answer is yes, then it constitutes a 'supply' within the meaning of the Act, otherwise it is not a "supply". (emphasis supplied) 70. The positio....
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....decree. Thus, the parameters in recovery of such damages either in the decree of the Court or in the arbitral award, would not be different. 72. In such context, it would be necessary to note the provisions of Sections 73 and 74 of the Contract Act providing for "Compensation for loss or damage caused by breach of contract." and "Compensation for breach of contract where penalty stipulated for" respectively, which read thus: Section 73 of Contract Act - Compensation for loss or damage caused by breach of contract.-When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract.-When an obligation resembling those created by contract has been incurred and has not be....
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....nder the Arbitral award, being the damages payable by Tata to Docomo. The award of such damages in the context of the Indian law would stand recognized under Section 73 of the Contract Act (supra) being a provision which ordains compensation for loss or damage caused by breach of contract. It is recovery of such award amount which was the subject matter of the proceedings before the Delhi High Court. In such context, we examine the applicability of the circulars as issued by the CBIC, considering the petitioner/Tata's contention that it is a settled principle of law that the department would be bound by the provisions of the circulars, this apart from the fact that respondents are certainly bound by law 74. It is clear from the contents of the aforesaid circular that, in cases where the amount of liquidated damages are paid, the same is regarded by the Department being amount paid, only to compensate, for injury, loss or damage suffered by the aggrieved party, due to breach of the contract and such amounts are regarded not to be any independent agreement, express or implied, in the hands of the aggrieved party receiving the liquidated damages, so as to infer that the aggrieved p....
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....ervice by a party agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. Thus, the basis and focus is on a specific agreement in regard to such activity, to attract the provisions of Section 7 of the CGST Act. 76. Having discussed the Circulars, we are of the opinion that the circulars in fact appropriately consider the legal position that in the normal circumstances, once liquidated damages are an amount being received by a party on account of breach of contract, receipt of such amount would not constitute consideration for a supply and accordingly, such amounts would not be taxable. There would be hardly any distinction between a party receiving such amount being categorized as liquidated damages and a party receiving such amount as damages awarded by the Civil Court or by an arbitral tribunal, for the reason that the legal character and nature of such payment is nothing but receipt of compensation for a breach of contract. In these circumstances, also in the present case, once the award amount was received by Docomo as paid by Tata, was an amount payable towards damages under the arbitral award in question, considering the su....
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....oceedings, that for receiving the amounts in full and final settlement of the decree, the decree-holder/award creditor would not pursue the proceedings as initiated before the different courts for recovery of such amounts, would in fact become a mandatory legal requirement, recognizing the legal incapacity of the decree holder/award creditor to pursue such proceedings, in view of the decree/award being satisfied. Thus, looked from any angle, in these circumstances, such position taken before any Court by the decree holders/award creditor cannot bring about any independent agreement outside the scope and purview of the execution proceedings, as such position being taken by the decree holder/award creditor, would be incidental or integral to the satisfaction of the decree/award. 78. Such legal consequences have been overlooked by the designated officer in attributing an independent agreement between Docomo and Tata, when in the course of enforcement of the arbitral award in question, the award creditor/Docomo took a position that in receiving the award amount in full and final, from Tata, it would not pursue the execution/recovery proceedings for recovery of the award amount. Thus....
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.... Courts, necessarily could not have been pursued and/or were to become inconsequential on the award debt being discharged by Tata. 81. In the context of levy of tax on the amount of damages received from the suppliers, on account of material breach of the terms and conditions of the contract, such issue had fell for consideration of the Tribunal in the case of South Eastern Coal Fields Ltd. vs. Commissioner of Central Excise and Service Tax, Raipur (supra). The revenue had fastened upon South Eastern Coal Fields Ltd. - the appellant, a liability under Section 65B read with Section 66E(e) of the Finance Act for the period from July 2012 till March 2016 on the ground that by collecting the said amount, the appellant had agreed to the obligation to refrain from an act or to tolerate the non-performance of terms of contract by the other party. Referring to the decision of the Supreme Court in Commissioner of Service Tax vs. M/s. Bhayana Builders (P.) Ltd. 2018 (2) TMI 1325 SC wherein it was held that any amount charged which has no nexus with the taxable service and which is not a consideration for the services provided, does not form part of the value which is taxable under Section....
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.... damages, Raman Iron Foundry made an interim application before the High Court under Section 41 read with the Second Schedule of the Arbitration Act, praying that the status quo be maintained and the appellant should be restrained from recovering its claim for damages from the pending bills of Raman Iron Foundry. The High Court issued an interim injunction. It is such order, which was the subject matter of consideration. In such context, the issue which fell for consideration of the Court, was to the purport of Clause 18, which intended to provide a right to recovery of claim for payment of a sum of money arising out of or under the contract. It is in such context, in examining as to whether there was any qualitative difference in the nature of a claim whether it be for liquidated damages or for unliquidated damages, it was held that, it makes no difference of the claim being for liquidated damages, as such claim stood on the same footing, as a claim for unliquidated damages. Referring to the decision of Chagla, CJ in Iron and Hardware (India) Co. vs. Firm Shamlal and Bros., the Supreme Court observed that the statement of law as made in the said judgment of this Court, represented....
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....of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not in actionable claim and this position is made amply clear by the amendment in s. 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. This has always been the law in England and as far back as 1858 we, find it stated by Wightman, J., in Jones v. Thompson, "Exparte Charles and several other cases decide that the amount of a verdict in an action for unliquidated damages is not a debt till judgment has. been signed".. It was held in this case that a claim for damages dots not become a debt even after the jury has returned a verdict in favour of the plaintiff till the judgment is actually delivered. So also in O' Driscoll v. Manchester Insurance Committee, (2) Swinfen Eady, L. J., said in reference to cases where the claim was for unliquidated damages : "in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given. The same view has also been taken consistently by different High ....
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....iate the amounts of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim Injunction restraining the appellant from doing so." (emphasis supplied) 83. 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....
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....or, while rejecting the case as urged on behalf of the respondents that the respondents were justified in proposing to levy GST on the settlement of arbitral award in the proceedings adopted by Docomo under Sections 47 and 48 of ACA. 86. Now coming to the objections as raised on behalf of the respondents, we are also not inclined to accept the case as urged on behalf of the respondents that the Writ Petition ought not to be entertained in view of an alternate remedy being available to the petitioner-Tata, relying on the decisions which we have referred hereinabove. In such context, we may observe that the principles of law in regard to the parties being relegated to alternate remedy are well-settled. It is purely the discretion of the Court whether its writ jurisdiction needs to be exercised or not. Such discretion is required to be judicially exercised. In this context, we may refer to the recent decision of the Supreme Court in Godrej Sara Lee Limited vs. Excise and Taxation Officer [(2023) SCC OnLine SC 95] wherein on the Writ Petition to be entertained and maintainable, the Supreme Court held thus:- 4. .... ... .... .... ....The power to issue prerogative writs unde....
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....rts, writ remedy being discretionary. A writ petition despite being maintainable may not be entertained by a high court for very many reasons or relief could even be refused to the petitioner, despite setting up a sound legal point, if grant of the claimed relief would not further public interest. Hence, dismissal of a writ petition by a high court on the ground that the petitioner has not availed the alternative remedy without, however, examining whether an exceptional case has been made out for such entertainment would not be proper. 5. A little after the dawn of the Constitution, a Constitution Bench of this Court in its decision reported in 1958 SCR 595 (State of Uttar Pradesh vs. Mohd. Nooh) had the occasion to observe as follows: 10. In the next place it must be borne in mind that there is no rule, with regard to certiorari as there is with mandamus, that it will lie only where there is no other equally effective remedy. It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute, (Halsbury's Laws of England, 3rd Edn., Vol. 11, p. 130 and the cases cited there). The fact that....
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....his Court found the issue raised by the appellant to be pristinely legal requiring determination by the high court without putting the appellant through the mill of statutory appeals in the hierarchy. What follows from the said decisions is that where the controversy is a purely legal one and it does not involve disputed questions of fact but only questions of law, then it should be decided by the high court instead of dismissing the writ petition on the ground of an alternative remedy being available." (emphasis supplied) 87. Adverting to the aforesaid settled principles of law, we may observe that no doubt the principles of law as laid down by the Supreme Court in the decisions as relied on behalf of the respondents in the facts pertaining to the said decisions, are well settled, however, considering the facts of the present case, we are not inclined to accept the respondent's contention that this petition ought not to be entertained and the petitioner-Tata needs to be relegated to the remedy of appeal. The reason being, that when have we come to a considered conclusion, that the designated officer had no jurisdiction to issue a show cause notice, so as to bring such demand....