2025 (1) TMI 590 - HC - GST

Classification of supply - supply of service or not - seeking a declaration that the activity of a holding company providing a corporate guarantee to its subsidiary is not in the nature of supply and/or supply of service taxable under Section 9 of the Central Goods and Services Tax Act, 2017 - HELD THAT - The issue involved in the present Petition is a recurring issue. This issue is pending before the several High Courts. The Delhi High Court has in fact granted a stay that no coercive action shall be taken against the Petitioner in case a final assessment order is passed or a demand is created. The Telangana High Court has stayed the effect and operation of the circular dated 27th October 2023. Even the Punjab and Haryana High Court has stayed the effect and operation of the impugned circular 27th October 2023. Time granted to the Respondents to file their affidavit-in-reply to the above Writ Petition in so far as it lays a challenge to the circular dated 27th October 2023 and also to the extent that the Petitioner seeks a declaration that the activity of a holding company providing a corporate guarantee to a subsidiary is not in the nature of supply and/or supply of service taxable under Section 9 of the CGST Act. The reply shall be filed within a period of 6 weeks from today. In the meanwhile and until further orders, the effect and operation of the impugned circular dated 27th October 2023, in so far as it relates to Item No. 2 thereof, is hereby stayed.

Summary

In the case before the Bombay High Court, the petitioner seeks a declaration that providing a corporate guarantee by a holding company to its subsidiary does not constitute a "supply" or "supply of service" under Section 9 of the Central Goods and Services Tax Act, 2017 (CGST Act). The petitioner challenges the constitutional validity of a circular dated 27th October 2023, which imposes a tax on such activities, claiming it violates Articles 14, 19(1)(g), 246A, 265, and 300A of the Indian Constitution. Additionally, the petitioner contests a notice dated 1st February 2024, demanding information on corporate guarantees from July 2017 to March 2021.

The respondent's counsel stated that the Assistant Commissioner, CGST Audit-I Commissionerate Pune, is not pursuing the matter further following the issuance of the Final Audit Report. The court noted that this issue is recurring and pending in several High Courts, with stays granted by the Delhi, Telangana, and Punjab and Haryana High Courts against the circular's enforcement.

The Bombay High Court granted the respondents six weeks to file an affidavit-in-reply concerning the challenge to the circular and the nature of the corporate guarantee as a taxable supply. Meanwhile, the court stayed the effect and operation of the impugned circular dated 27th October 2023, specifically relating to Item No. 2, until further orders. The order will be digitally signed and disseminated via fax or email.