The Delhi High Court has issued notice in a writ petition filed by InterGlobe Aviation Limited, the operator of IndiGo, and granted interim protection against coercive action in a significant GST dispute involving the taxability of compensation received for business losses.
TheDivision Bench of Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul noted that the controversy requires detailed consideration because it concerns the interpretation of Section 7 of the CGST Act and the applicability of the CBIC Circular dated 3 August 2022, particularly Clauses 7 and 7.1.
The case raises an important legal issue concerning whether compensation paid for non-performance of obligations can be treated as a taxable “supply” under the Central Goods and Services Tax (CGST) Act, 2017.
InterGlobe Aviation argued before the Court that the amount received by it was merely compensation arising out of non-performance which caused business losses and therefore could not be categorized as a “supply” under GST law. The company further contended that the CBIC circular specifically clarifies circumstances in which compensation payments do not amount to consideration for supply of services. It was submitted that the impugned action was without jurisdiction in light of the statutory framework and the language used in the circular.
The Court framed the core issue in the matter as whether compensation received for non-performance leading to business losses can be regarded as a “supply” within the meaning of Section 7 of the CGST Act and whether such compensation is excluded from the scope of taxable supply because of the clarification issued by the tax authorities themselves.
While granting interim protection, the Bench made notable prima facie observations regarding the nature of the payment involved in the dispute. The Court observed that on a preliminary reading of Clauses 7 and 7.1 of the circular and keeping in view the definition of service under Section 7, it appeared that the amount received by the petitioner was compensation and could not be treated as supply.
Based on these observations, the High Court directed that no coercive action shall be taken against InterGlobe Aviation pending further proceedings in the matter. The respondents accepted notice through counsel and the matter has been listed for further hearing on 31 August 2026.
Case Details
Case Title: Interglobe Aviation Limited Versus Additional Commissioner Cgst South Commissionerate & Ors.
Case No.: W.P.(C) 7271/2026, CM APPL. 35551/2026 & CM APPL. 35552/2026
Date: 22.05.2026
Counsel For Petitioner: V. Lakshmikumaran, Mr. Kunal Kapoor
Counsel For Respondent: Aditya Singla, SSC
