Delhi High Court Grants Protection to IndiGo from ₹458-Crore GST Liability Over Engine Compensation Dispute

Delhi High Court Blocks GST Demand Against IndiGo

The Delhi High Court on Friday granted interim protection to InterGlobe Aviation, the parent company of India's largest airline IndiGo, from coercive action over a ₹458.26 crore goods and services tax (GST) demand. The demand is linked to compensation received from a foreign engine supplier.

A division bench of Justices Nitin Wasudeo Sambre and Ajay Digpaul issued notice to the GST department and granted the protection after observing that, prima facie, the amount received by IndiGo appeared to be a "compensation", and not "supply". The court's observation suggests that the ₹458.26 crore may not be subject to GST.

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IndiGo argued before the court that there was no risk to revenue and no need for coercive recovery because the airline was financially sound. IndiGo's counsel, V. Lakshmikumaran, pointed out that the airline pays more than ₹20,000 crores in a year, and therefore, the question of safeguarding revenue was not an issue.

The dispute relates to a tax order issued under Section 74 of the CGST Act for the period FY2018-19 to FY2022-23. Tax authorities argued that GST was payable on compensation received by IndiGo and also questioned certain input tax credit (ITC) claims. The case goes back to 2018-19 and 2019-20 when engine defects forced IndiGo to ground some aircraft for safety reasons, resulting in business losses.

To make up for these losses, the foreign engine supplier entered into an arrangement with IndiGo and issued credit notes worth around ₹2,000 crore. However, tax authorities argued that by accepting this compensation, IndiGo had effectively agreed to tolerate the supplier's failure to meet performance commitments.

IndiGo challenged this view before the High 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 could not operate normally due to engine problems and, therefore, represented business loss rather than a taxable transaction.

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The airline also argued that GST had already been paid when the aircraft and engines were imported into India. According to the airline, the compensation only reduced the effective value of the aircraft and did not create a new taxable event. IndiGo further argued that even if the amount was treated as payment for a service, it would qualify as export of services—which means no GST is payable—since the supplier was based overseas.