Indigo News: Delhi High Court Grants Interim Relief to IndiGo in ₹458 Crore GST Case
Indigo News
The Delhi High Court has granted temporary relief to IndiGo Airlines in a major Goods and Services Tax (GST) dispute involving a demand of nearly ₹458 crore. The Court directed tax authorities not to take any coercive action against the airline until further hearings in the matter.
The case revolves around compensation received by IndiGo from a foreign aircraft engine supplier after several aircraft engines reportedly malfunctioned during the financial years 2018-19 and 2019-20. According to the airline, the engine failures forced multiple aircraft to remain grounded, resulting in operational disruption and business losses.
A Division Bench of Justices Nitin Wasudeo Sambre and Ajay Digpaul observed during the hearing that the payment received by the airline appeared to be “compensation” rather than a taxable “supply” under GST law. Based on this preliminary view, the Court granted interim protection to the airline.
InterGlobe Aviation, the parent company of IndiGo, challenged the GST demand and argued that the tax authorities had wrongly treated the compensation as payment for a service. The airline maintained that the amount was paid solely to cover losses caused by engine malfunction and grounding of aircraft, not for providing any service to the foreign supplier.
During the proceedings, IndiGo’s counsel informed the Court that the airline had already paid Integrated GST at the time of importing aircraft and engines. Later, after operational issues emerged, a supplementary agreement was signed with the overseas supplier, which issued credit notes reportedly worth around ₹2,000 crore as compensation for loss of flying hours and business impact.
However, GST authorities argued that by accepting compensation, IndiGo had effectively agreed to “tolerate” the supplier’s failure to meet performance standards, making the transaction taxable under the reverse charge mechanism.
IndiGo rejected this interpretation and relied on provisions of the Central Goods and Services Tax Act as well as a CBIC circular issued in August 2022. The airline argued that compensation for breach of contract or non-performance cannot automatically be treated as consideration for a taxable service.
The High Court has now issued notice in the matter and scheduled further hearings after the court vacation. Until then, no recovery action can be initiated against the airline.
