In a major relief for Tata Sons, the Goods and Services Tax (GST) department (AA) tribunal has dismissed the company’s GST demand of over Rs 1,500 crore over a deal with DoCoMo. Officials associated with the case said the AA order will serve as an example for companies involved in arbitration. An official said the party has the option to challenge it in the High Court.
What was the problem?
In 2019, the Directorate General of GST Intelligence (DGGI) had claimed 18% GST on $1.27 billion that the Tata group holding company paid to the Japanese telecom firm to settle its dispute with Tata Teleservices in 2017. It argued that since the payment was made on behalf of Tata Teleservices, it should be treated as a loan from Tata Sons to the group company and hence be subject to 18% GST. Tata Sons challenged this claim, arguing that the payment was a result of an arbitration proceeding in a London court and hence GST was not applicable.
The cable is connected to 2022.
Later, in November 2022, the software company filed a writ petition in the Bombay High Court challenging a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on August 3, 2022, and February 28, 2023. Citing another circular issued, it was submitted that no GST can be levied on the liquidated losses. The company argued before the High Court that this amount was the dues paid by Tata Sons on behalf of Tata Teleservices and not the amount paid for any service provided by DoCoMo.
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DGGI gave information
This is an arbitration case that has been settled and closed. The DGGI is looking at it in a very technical manner. However, in 2023, the High Court allowed the department to issue a show-cause notice (SCN) to the company, which the company challenged before the AA. An official said that the AA relied on the arguments given by the company while taking the decision in its favour. Since this is an order of the AA, it will serve as an example for other companies facing similar suits.
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The Japanese company had made this demand.
The Japanese firm sought to exercise that option in 2015 due to Tata Teleservices’ financial difficulties. However, the Reserve Bank of India (RBI) believed that such exits could only happen at fair market value, as per the amended norm in 2013. At the time, Tata Sons, led by the late Cyrus Mistry, cited this and refused to pay the agreed amount. DoCoMo filed for international arbitration and in 2017 said it received a $1.27 billion payment from Tata Sons by the Court of International Arbitration for its stake in Tata Teleservices Limited (TTSL).
