The Goods and Service Tax (GST) department has dismissed a demand of over Rs 1,500 crore on Tata Sons over a settlement deal with Docomo.
In a significant development, the authority of the Goods and Services Tax (GST) department has dismissed a GST demand exceeding Rs 1,500 crore on Tata Sons, which was related to a settlement deal with the Japanese company Docomo, according to a report by the Economic Times.
According to a report, officials involved in the matter said the order could serve as a precedent for other companies engaged in arbitration. They also added that the GST department still has the option to challenge the decision in the High Court.
What Is GST Demand On Tata Sons
The case began in 2019, when the Directorate General of GST Intelligence (DGGI) imposed an 18 per cent GST on the $1.27 billion paid by Tata Sons to Docomo in 2017. The payment was made to settle a dispute involving Tata Teleservices.
The DGGI stated that since the payment was made on behalf of Tata Teleservices, it should be considered a loan from Tata Sons to the group company and they claimed that the payment fell under the purview of an 18 per cent GST.
The DGGI levied the GST based on Schedule II of the Central Goods and Services Tax (CGST) Act, which classifies the payment of loans as a service. The ET report also claimed that a senior GST official had said, “Tata Sons, being the holding company, is liable to pay the 18 per cent GST on behalf of Tata Teleservices.”
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Tata Sons’ Docomo Case History
In November 2022, Tata Sons filed a writ petition with the Bombay High Court, citing two circulars issued by the Central Board of Indirect Taxes and Customs (CBIC) in August 2022 and February 2023. These circulars suggested that no GST could be levied on liquidated damages.
Tata Sons argued in court that the payment to Docomo was made on behalf of Tata Teleservices and was not for services provided by Docomo. “The amount was paid as part of an arbitration settlement, not for services,” the company stated.
Despite Tata Sons’ arguments, the Bombay High Court allowed the GST department to issue a show-cause notice in 2023.
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