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TMI Blog2024 (10) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... 26-06-2024 issued by the Central Board are binding on the authorities. The learned Senior Standing Counsel appearing for the respondent department does not dispute that the issues raised are covered by virtue of the clarifications given in the Circulars referred. It is not disputed that the impugned show cause notice does not deal with any other issue. This writ petition is allowed and Ext.P1 show cause notice will stand quashed. - THE HONOURABLE MR. JUSTICE GOPINATH P. For The Petitioner: V. Raghuraman (Sr.) Bhanumurthy K.S. Bharathan Aadithyan S.Mannali Alphin Antony Visakh Antony Christine Mathew Rance R. For The Respondents: Sreelal N. Warrier (Sc), Jasmine M.M (Gp) JUDGMENT The issues raised in this writ petition appear to be covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing personal guarantee by the Director to the banks/ financial institutions for securing credit facilities for their companies is to be treated as a supply of service, even when made without consideration. Rule 28 of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as CGST Rules ) prescribes the method for determining the value of the supply of goods or services or both between related parties, other than where the supply is made through an agent. In terms of Rule 28 of CGST Rules, the taxable value of such supply of service shall be the open market value of such supply. RBI has provided guidelines for obtaining personal guarantee of promoters, directors and other managerial personnel of the borrowing concerns vide Para 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s inspectors should verify that this stipulation has been complied with. There may, however, be exceptional cases where payment of remuneration may be permitted e.g. where assisted concerns are not doing well and the existing guarantors are no longer connected with the management but continuance of their guarantees is considered essential because the new management's guarantee is either not available or is found inadequate. Accordingly, as per mandate provided by RBI in terms of Para 2.2.9 (C) of RBI's Circular No. RBI/2021-22/121 dated 9 th November, 2021, no consideration by way of commission, brokerage fees or any other form, can be paid to the director by the company, directly or indirectly, in lieu of providing personal guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the transaction of providing loan by an overseas entity to its Indian related entity or by a person in India to a related person 1 Whether the activity of providing loans by an overseas affiliate to its Indian affiliate or by a person to a related person, where there is no consideration in the nature of processing fee/ administrative charges/ loan granting charges etc., and the consideration is represented only by way of interest or discount, will be treated as a taxable supply of service under GST or not. 1. As per clause (c) of sub-section (1) of section 7 of the CGST Act, read with S. No. 2 and S. No. 4 of Schedule I of CGST Act, supply of goods or services or both between related persons, when made in the course or furtherance of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther than by way of interest or discount, would represent taxable consideration for providing the facilitation/ processing/ administration services for the loan and hence would be liable to GST. This has been clarified at serial number 42 in the Sectoral FAQ on Banking, Insurance and Stock Brokers Sector issued by CBIC. 4. It is significant to note that the processing/ service fee is generally charged by the bank/ financial institution from the recipient of the loan in order to cover the administrative cost of processing the loan application. An independent lender may carry out a thorough credit assessment of the potential borrower to identify and evaluate the risks involved and to consider methods of monitoring and managing these risks. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated party, on equal footing. 6. Even in case of loans provided between unrelated parties, there may not be any processing fee/ administrative charges/ loan granting charges etc., based on the relationship between the bank/ independent lender and the person taking the loan. The lender might waive off the administrative charges in full, based on the nature and amount of loan granted, as well as based on the relationship between the lender and the concerned person taking the loan. 7. Accordingly, in the cases, where no consideration is charged by the person from the related person, or by an overseas affiliate from its Indian party, for extending loan or credit, other than by way of interest or discount, it cannot be said that any supply of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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