Amman Try Trading Company Private Limited Vs State Tax Officer (Madras High Court)
The case concerned the levy of GST on the provision of a corporate guarantee by a company to its related entity. The writ petitioner had furnished a corporate guarantee in favour of a related company but claimed that no consideration was received for this act. The assessing officer, however, concluded that such a guarantee constituted a supply of service under GST law and imposed tax at 1% of the guarantee amount. Aggrieved by this assessment, the petitioner challenged the order before the Madras High Court.
The Court noted that the respondent authority had indeed issued a show-cause notice prior to passing the impugned order, and the petitioner had duly filed a reply. In the reply, the petitioner relied upon Circular No. 199/11/2023-GST dated 17.07.2023 and Circular No. 210/4/2024-GST dated 26.06.2024, which provide clarification on valuation of supply in cases of corporate guarantees under Rule 28 of the CGST Rules, 2017.
Rule 28(2) specifically deems the value of a corporate guarantee provided by a related party to be 1% of the guaranteed amount per annum or the actual consideration, whichever is higher. However, the Rule also provides that where the recipient is eligible for full input tax credit (ITC), the value declared in the invoice shall be treated as the open market value.
