2024 (3) TMI 1311 - HC - GST

Taxability of Personal Guarantee and Corporate Guarantee in GST - Seeking a declaration that the activity of the holding company providing a Corporate Guarantee to a subsidiary is not in the nature of supply of services taxable under Section 9 of the Central Goods Service Tax Act, 2017 - HELD THAT - Issue notice. List on 08.07.2024.

Summary

Issues involved:
The issues involved in the judgment are the taxability of Corporate Guarantee provided by a holding company to a subsidiary under Section 9 of the Central Goods & Service Tax Act, 2017 and the validity of a Circular issued by the Central Board of Indirect Taxes & Customs regarding the taxability of Personal Guarantee and Corporate Guarantee in GST.

Taxability of Corporate Guarantee:
The petitioner sought a declaration that providing a Corporate Guarantee by a holding company to a subsidiary does not constitute a supply of services taxable under Section 9 of the CGST Act, 2017. The petitioner relied on a decision by CESTAT Chennai in the case of M/s Sterlite Industries India Ltd, which held that a Corporate Guarantee to an associate company is akin to an in-house guarantee and does not amount to providing services. Additionally, the petitioner referred to a Supreme Court order in the case of Commissioner of CGST & Central Excise Vs. M/s. Edelweiss Financial Services Ltd, where it was held that issuing a Corporate Guarantee without consideration does not fall within banking and financial services, thus not taxable.

Validity of Circular and Rule Amendment:
The petitioner challenged a Circular dated 27.10.2023 issued by the Central Board of Indirect Taxes & Customs, which made the provision of Corporate Guarantee to an associate taxable at 1% of the guarantee value without amending the relevant rule or statute. The petitioner argued that this circular contradicted the amendment made to Rule 28 of the CGST Act, 2017 by Notification dated 26.10.2023. The petitioner contended that the value of a Corporate Guarantee should not be fixed at 1% as it could impose a burdensome obligation on the providing entity, especially considering that the guarantee's enforcement is contingent and not directly linked to its value.

Court Proceedings:
The court issued notice on the matter, which was accepted by the respondent's counsel who requested time to file a counter affidavit. The court granted six weeks for the filing of the counter affidavit and allowed four weeks for a rejoinder thereafter. During this period, the court directed that no coercive action should be taken against the petitioner even if a final assessment order is passed or a demand is created. The case was listed for further hearing on 08.07.2024.