Delhi HC Stays Coercive Action Against IndiGo In Rs. 458 Crore GST Compensation Dispute [Read Order]

New Delhi: The Delhi High Court has granted interim protection to InterGlobe Aviation Limited, the parent company of IndiGo airline, from coercive action in connection with a GST demand of Rs. 458.26 crore raised on compensation received from a foreign engine supplier, holding on a prima facie basis that the amount received was towards compensation and could not, in any way, be termed a supply under Section 7 of the Central Goods and Services Tax Act, 2017.

A Division Bench of Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul passed the order on May 22, 2026, in W.P.(C) No. 7271 of 2026, issuing notice to the GST department and listing the matter for further hearing on August 31, 2026.

Background and Issue

The dispute concerns a GST demand of Rs. 458.26 crore raised by the Additional Commissioner, CGST South Commissionerate, on the footing that compensation received by InterGlobe Aviation from a foreign engine supplier for non-performance — which resulted in business losses being caused to the airline — constituted a taxable supply of service under the CGST Act, 2017. The tax authorities proceeded on the basis that such compensation fell within the wide definition of “supply” under Section 7 of the Act, which covers all forms of supply of goods or services, or both, made in the course or furtherance of business for a consideration.

InterGlobe Aviation challenged the demand before the Delhi High Court, contending that the impugned order was without jurisdiction and contrary to the position clarified by the Central Board of Indirect Taxes and Customs in its Circular dated August 3, 2022. The petitioner placed particular reliance on Clauses 7 and 7.1 of the said Circular, which deal with the GST treatment of amounts received in the nature of compensation or damages for failure or non-performance of contractual obligations, as distinct from amounts received for an actual supply of goods or services.

Petitioner’s Submissions

Counsel for InterGlobe Aviation submitted that the amount received by the airline was purely in the nature of compensation for business losses suffered on account of non-performance by the foreign engine supplier and did not involve any supply of goods or services by the petitioner. It was argued that such amounts, by their very character, fall outside the scope of “supply” as defined under Section 7 of the CGST Act, 2017, since they do not involve any act, forbearance, or refraining from an act in relation to a transaction in the course or furtherance of business.

It was further contended that the Circular dated August 3, 2022, and specifically Clauses 7 and 7.1 thereof, expressly clarified that amounts received as compensation or penalty for breach of contract or non-performance are not liable to GST, since such amounts are not received for any supply but arise as a consequence of non-performance. Counsel submitted that, in the face of this Circular, the department’s characterisation of the compensation as a taxable supply was without jurisdiction.

Court’s Prima Facie View and Interim Relief

The Division Bench recorded the following question for consideration: “Whether the compensation received for non-performance, which resulted in business loss being caused to the petitioner, can be said to be ‘supply’ within the meaning of Section 7 of the Central Goods and Services Tax Act, 2017, and whether such compensation stands excluded from the clutches of the definition of ‘supply’ in view of the Circular dated 3rd August, 2022, particularly Clauses 7 and 7.1 thereof, requires consideration.”

Upon a prima facie reading of Clauses 7 and 7.1 of the Circular and the provisions of Section 7 of the CGST Act, the Bench was satisfied that the amount received by the petitioner was towards compensation and could not be termed a supply. “The amount received by the petitioner was towards compensation and could not, in any way, be termed as supply,” the court observed, directing that there shall be no coercive action against InterGlobe Aviation until the next date of hearing.

Case Details

• Case Title: InterGlobe Aviation Limited v. Additional Commissioner CGST South Commissionerate and Others
• Case Number: W.P.(C) No. 7271 of 2026 with CM APPL. Nos. 35551 and 35552 of 2026
• Court: High Court of Delhi
• Bench: Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul
• Date of Order: May 22, 2026
• Next Date: August 31, 2026
• Petitioner’s Advocates: Mr. V. Lakshmikumaran, Mr. Kunal Kapoor, and Mr. Yatharth Tripathi
• Respondents’ Advocate: Mr. Aditya Singla

[Read Order]