Payment of Arbitral Damages is not supply

In a significant ruling on GST scope, the Court decisively rejects the artificial expansion of “toleration of an act” under Schedule II to cover arbitral damages. It holds that damages, being compensatory and flowing from breach adjudication, cannot be recharacterised as consideration for a service. 

The Court further emphasizes the binding nature of CBIC circulars and intervenes at the show cause stage due to clear lack of jurisdiction. The ruling reinforces a critical boundary: not every monetary flow under a contract or settlement constitutes taxable supply.