In case of corporate guarantee, “No consideration- no tax liability under GST” Bombay High court.
In the recent case of M/s. D P Jain & Co. Infrastructure Private Limited vs Union of India and others Bombay High Courtheld that, In case of corporate guarantee, There was no flow of consideration for the rendering of services, so taxability does not arise. However amendment to the Valuation rule of taxation of corporate guarantee are constitutionally valid.
Facts of the case
The Petitioner Company M/s D.P. Jain & Co. infrastructure Pvt. Ltd. is engaged in the business of Construction of National and State Highways. In respect of projects awarded by the National Highways Authorities and State Corporations under HAM model to the subsidiary companies, and terms of contract, a deed of Corporate Guarantee was executed between the Petitioner and Banking institutions for subsidiaries.
the Assistant Commissioner of State carried out the detailed investigation against the Petitioner Company for the year 2017-18 to 2022-23. Later investigation was carried out by Central authority without stating the nature and purpose of investigation and the period of investigation and under which provisions of law such investigation was initiated.
It is contended that, the activity of providing corporate guarantee by a person on behalf of another related person or by the holding Company for sanction of credit facilities to its subsidiary Company, to the bank/financial institutions, even when made without any consideration will be treated as a taxable supply of service and thereby initiated proceeding against the present Petitioner holding liable to pay tax for the said corporate guarantee.
