Tata Sons gets big Rs 1,500 crore tax relief in years-old Docomo deal
Mumbai, Sep 23, 2024
Synopsis
Tata Sons has received relief as the GST department's Adjudicating Authority dismissed a ₹1,500 crore GST demand related to a settlement with Docomo. The decision could set a precedent for arbitration cases. The department may still contest the ruling in the High Court.
In a significant relief for Tata Sons, the Adjudicating Authority (AA) of the Goods and Services Tax (GST) department has dismissed a GST demand of over ₹1,500 crore on the company over a settlement deal with Docomo.
The AA order will act as a precedent for companies engaged in arbitration, officials close to the matter told ET.
"The department has the option of contesting it before the High Court," one of the officials said.
In 2019, the Directorate General of GST Intelligence (DGGI) claimed 18% GST on the $1.27 billion that the Tata Group holding company paid to the Japanese telecommunications company in 2017 to settle a dispute with Tata Teleservices.
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 firm and hence liable for 18% GST.
Tata Sons challenged the claim, arguing that the payment was the outcome of arbitration proceedings in a London court and therefore GST was not applicable.
GST Tax Case
Subsequently, in November 2022, the salt-to-software conglomerate filed a writ petition before the Bombay High Court where it cited a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) on August 3, 2022, and another issued on February 28, 2023, for claiming that no GST could be levied on liquidated damages.
"The amount was the due paid on behalf of Tata Teleservices by Tata Sons and not for any services rendered by Docomo. It is an arbitration case that was paid and closed... DGGI is looking at it in a very technical manner," the company had pleaded before the HC.
However, in 2023, the HC allowed the department to issue a show-cause notice (SCN) to the company which was further challenged by the company before the AA.
"The AA has relied upon the arguments made by the company while ruling in its favour," the official quoted above said. "Since this is the order of the AA, it would act as a precedent for other companies facing similar litigations," the person added.
Tata Sons did not comment on the AA order.
The DGGI levied the GST under Schedule 2 of the CGST Act, which treats the payment of loans as a service rendered.
"Since Tata Sons is the holding company, it is liable to pay 18% GST on behalf of Tata Teleservices," a senior official told ET.
Advait M Sethna, counsel specialising in indirect tax and arbitration, said the Telangana Advance Ruling Authority in a recent ruling had held that GST is not payable on out-of-court settlements.
"In my view liquidated damages arising in arbitration are ordinarily exempt from GST," he said. "However, it appears that if the award is attributable to claims arising out of goods and/or services as defined under GST Act, then to that extent, GST would be leviable. The said definition under GST Act specifically excludes money security and actionable claims," Sethna said.
NTT Docomo had acquired a 26.5% stake in Tata Teleservices in 2009. The two sides had agreed at the time that the Japanese company could exit the venture at a pre-determined minimum price-at least half of what it paid to acquire the stake. The Japanese firm sought to exercise that option in 2015 due to Tata Teleservices' financial struggles.
The Reserve Bank of India (RBI), however, was of the view that such an exit could only take place at fair market value, in tune with a rule amended in 2013. Tata Sons, then led by the late Cyrus Mistry, cited this and declined to pay the agreed amount. Docomo filed for international arbitration and in 2017 it stated that it received from Tata Sons $1.27 billion awarded by an international arbitration court for its stake in Tata Teleservices Ltd (TTSL).
[The Economic Times]
