The Bombay High Court has examined whether damages paid under an arbitral award can be subjected to GST, in a high-stakes dispute involving Tata Sons Private Ltd. and Japanese telecom giant NTT Docomo Inc.
The bench of Justice G. S. Kulkarni and Justice Aarti Sathe has observed that GST can be levied only when there is a “supply” as defined under Section 7 of the CGST Act. For a transaction to qualify as supply: There must be a clear agreement or arrangement; and There must be consideration flowing for such supply. In the present case, the Court examined whether Docomo, by accepting damages and withdrawing enforcement proceedings, could be said to have provided a service such as “tolerating an act.”
The case arose from a writ petition filed by Tata Sons challenging a massive Integrated Goods and Services Tax (IGST) demand of over ₹1,524 crore raised by the Directorate General of GST Intelligence (DGGI). The demand stemmed from payments made by Tata Sons to Docomo pursuant to an arbitral award and subsequent settlement proceedings.
The dispute traces back to a 2009 shareholders’ agreement between Tata Sons and NTT Docomo in relation to Tata Teleservices Limited. Under the agreement, Docomo had acquired a 26% stake, with exit clauses linked to performance benchmarks. When these conditions were not met, disputes arose, eventually leading to arbitration before the London Court of International Arbitration (LCIA).
In June 2016, the arbitral tribunal awarded damages exceeding USD 1.17 billion to Docomo. The award was later enforced by the Delhi High Court, which treated it as a deemed decree. Tata Sons subsequently deposited approximately ₹8,450 crore in compliance with the award.
The controversy began when the DGGI initiated an investigation into the taxability of the damages paid to Docomo. The department alleged that the payment constituted consideration for a “supply of service,” specifically falling under the category of “agreeing to tolerate an act” under Entry 5(e) of Schedule II of the CGST Act.
Based on this interpretation, Tata Sons was issued a pre-show cause intimation and later a formal show cause notice under Section 74 of the CGST Act, demanding IGST along with interest and penalty.
Tata Sons strongly contested the demand, arguing that the payment to Docomo was purely in the nature of damages arising from breach of contract, and not consideration for any service. Damages awarded through arbitration and enforced as a decree cannot be equated with a taxable supply under GST law. The department’s action was contrary to binding CBIC circulars, which clarify that liquidated damages are not subject to GST unless there is an independent agreement to tolerate an act for consideration. The withdrawal of enforcement proceedings by Docomo was merely consequential to satisfaction of the arbitral award and did not constitute a separate taxable arrangement.
The company also alleged violation of principles of natural justice and lack of jurisdiction in issuing the demand.
The GST department defended the proceedings, contending that the writ petition was premature as it challenged a show cause notice. The consent terms entered between Tata Sons and Docomo went beyond mere compliance with the arbitral award. The agreement to suspend enforcement actions for a specified period amounted to a separate contractual obligation, potentially qualifying as a “supply” under GST law. The issue required adjudication by tax authorities and should not be interfered with at the writ stage.
The central question before the High Court was whether settlement of an arbitral award—particularly involving damages and subsequent consent terms—can be treated as a “supply” under Section 7 of the CGST Act.
The court held that damages arising from breach of contract—even when settled through arbitration and consent terms—do not constitute “supply” under GST, unless supported by a clear, independent agreement to provide a service for consideration.
Case Details
Case Title: Tata Sons Private Ltd. Versus UOI
Citation: JURISHOUR-1078-HC-2026(BOM)
Case No.: Writ Petition No. 4914 Of 2022
Date: 30/04/2026
Counsel For Petitioner: Arvind Datar, Sr. Adv.
Counsel For Respondent: Anil C. Singh, ASG
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