Delhi HC shields IndiGo from ₹458-cr GST over engine compensation dispute

The Delhi High Court on Friday shielded InterGlobe Aviation, which operates India’s largest airline IndiGo, from a series of coercive actions. ₹458.26 crore goods and services tax (GST) claim in connection with compensation received from a foreign engine supplier.

A bench comprising Justices Nitin Wasudeo Sambre and Ajay Digpaul issued notice to the GST department and granted interim protection to the airline after observing that prima facie the amount received by IndiGo appeared to be “compensation” and not “supply”.

IndiGo argued before the court that there was no revenue risk as the airline was financially sound and there was no need for compelling improvement.

“I won’t run away… I’m paying too much ₹“20,000 crore per annum,” said V. Lakshmikumaran, advisor to IndiGo, while touching on concerns regarding revenue preservation. “So, the issue of revenue preservation is neither a problem nor a problem. I am a solvent,” he added.

Questions sent to IndiGo seeking comment on the issue remained unanswered till press time.

The dispute relates to a tax order issued under Section 74 of the CGST Act for the period between FY 2018-19 and FY 2022-23. Tax authorities argued that goods and services tax (GST) should be paid on the compensation received by IndiGo and also questioned certain input tax credit (ITC) claims.

The case dates back to 2018-19 and 2019-20, when engine failures forced IndiGo to ground some aircraft for safety reasons. As the planes were unable to fly, the airline lost flight hours and suffered job losses.

To offset these losses, it reached an agreement with foreign engine supplier IndiGo and took out a credit note of approximately $100,000. ₹2,000 crore. In simple terms, these credit scores worked as compensation for the airline’s losses from grounded planes.

However, tax authorities argued that by accepting this compensation, IndiGo had effectively agreed to tolerate the supplier’s failure to meet its performance commitments. On this basis, the ministry treated this amount as payment for a service and claimed GST under the reverse charge mechanism.

IndiGo challenged this view before the Supreme Court, arguing that the money was compensation for losses and not payment for any service provided by the airline.

The airline said the compensation was paid only because its aircraft was unable to operate normally due to engine problems, thus amounting to a loss of business rather than a taxable transaction.

The airline also argued that GST was already paid when the aircraft and engines were imported into India. According to the airline, the compensation merely reduced the actual value of the aircraft and did not create a new taxable event.

IndiGo also argued that even if the amount was treated as payment for a service, the amount would qualify as export of services as the supplier was based abroad, meaning no GST would be payable.