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TMI BlogClarification on various issues pertaining to taxability and valuation of supply of services of providing corporate guarantee between related personsX X X X Extracts X X X X X X X X Extracts X X X X ..... ted October 27, 2023 to provide for a specific clause for valuation of supply of services of providing corporate guarantee to any banking company or financial institution by an entity on behalf of a related person. Besides, GST Circular No. 16/2023 dated 1st November, 2023 was also issued as per the recommendations of the GST Council, to provide clarity regarding the applicability of the said sub-rule. Subsequently, based on the recommendations of the GST Council, sub-rule (2) of rule 28 of the RGST Rules has been amended retrospectively with effect from October 26, 2023 vide Notification No. F. 12(1)FD/Tax/2024-88, dated 19th July, 2024. 1.2 In this regard, various representations have been received from trade and industry, seeking clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding the taxability of the said supply itself. Prior to the insertion of the said sub-rule, i. e., before 26th October 2023, the valuation of service of providing corporate guarantee to any banking company or financial institution by a supplier to a related recipient, on behalf of the said recipient, was to be done as per the provisions of rule 28 of the RGST Rules, as it existed then. Therefore, in respect of supply of services of providing corporate guarantee between related persons, in respect of corporate guarantee issued or renewed before 26th October 2023, the valuation of the said supply is to be done in accordance with rule 28, as it existed during that time. However, if the corporate guarantee is issued or renewed on or after 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantee to any banking company or financial institution by a supplier to a related recipient, on behalf of the said recipient, the supplier of the service is the corporate entity providing the corporate guarantee and the recipient is the related entity for whom the corporate guarantee is provided by the said supplier. Therefore, if the loan issued by the banking company/financial institution is taken over by another banking company/financial institution, the said activity of taking over of the loan does not fall under the service of providing corporate guarantee to any banking company or financial institution by a supplier to a recipient. Therefore, it is clarified that in such cases, there will be no impact on GST, unless there is issuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, then GST shall be payable by A and B proportionately, i. e., 0.6 per cent. and 0.4 per cent. of the amount guaranteed. This is to say that A shall pay GST on one per cent. of the amount guaranteed by A, i. e., one per cent. on Rs. 60 lakhs and B shall pay GST on one per cent. of the amount guaranteed by B, i. e., one per cent. on Rs. 40 lakhs. 5. Where intra-group corporate guarantee is issued, whether GST may be paid by the recipient under reverse charge, as in the absence of actual invoice and payment, the recipient entity may not be able to claim input tax credit of tax paid by the domestic guarantor ? It is clarified that in cases where domestic corporates issue intra-group guarantees, GST is to be paid under forward charge m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered or the actual consideration whichever is higher. In addition to the above, in cases where the corporate guarantee is provided for a period less than a year, say six months (half a year), then in those cases as well, the valuation may be done on proportionate basis for the said period, i.e., in this case, the value of the said supply of services may be taken as half of one per cent of the amount of such guarantee offered (6/12 * one per cent.), or the actual consideration, whichever is higher. To illustrate the same, if a corporate guarantee is issued for a period of say five years, then the value of such guarantee is to be calculated at one per cent per year of the amount of such guarantee offered, or the actual consideration, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f corporate guarantees provided between related persons, where full input-tax credit is available to the recipient of services, the value declared in the invoice shall be deemed to be the value of supply of the said service. 8. Whether the valuation in terms of rule 28(2) of the RGST Rules will apply to the export of the service of providing corporate guarantee between related persons ? As per the amendment done in sub-rule (2) of rule 28 of the RGST Rules retrospectively with effect from 26th October 2023 vide Notification No. F. 12(1)FD/Tax/2024-88, dated 19th July, 2024, the provisions of the said sub-rule will not apply in cases where the recipient of the services of providing corporate guarantee between related persons is located ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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