Case Law Details
Sterlite Power Transmission Ltd. Vs Union of India (Delhi High Court)
Delhi HC issued notice to decide on the taxability of providing corporate guarantee by holding company to a subsidiary
The Hon’ble Delhi High Court heard the case of Sterlite Power Transmission Ltd. v. Union of India [WP (C) 2966 of 2024] on February 28, 2024.
The Petitioner has filed a writ petition for declaration to the effect that the activity of the holding company providing a Corporate Guarantee to a subsidiary should not be considered as supply of services taxable under Section 9 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).
The Counsel for the Petitioner relied upon the order dated March 17, 2023 passed by Hon’ble Supreme Court in the case of Commissioner of CGST & Central Excise v. Edelweiss Financial Services Ltd [Civil Appeal (Diary No). 5258/2023] wherein it was contended that, issuance of Corporate Guarantee to a group company without consideration would not fall within banking and other financial services and therefore, is a non-taxable service.
The Counsel for the Petitioner argued that, the provision of Corporate Guarantee is in the nature of a contingent contract which is not enforceable till the guarantee is enforced by the entity to which the guarantee is provided. He further submits that the value of enforcement is not dependent on the value of the guarantee and it is only where the guarantee is enforced that the issue of service may arise, and fixing a value at 1% of the Corporate Guarantee provided would put onerous burden on the entity providing the Corporate Guarantee.
The Hon’ble Delhi High Court issued Notice and listed the matter for further hearing on July 08, 2024.
Conclusion: The case of Sterlite Power Transmission Ltd. v. Union of India brings to light a crucial issue regarding the taxation of corporate guarantees provided by holding companies to subsidiaries under the CGST Act. The court’s decision will have significant implications for businesses and the interpretation of tax laws governing such transactions.
This notice by the Delhi High Court underscores the importance of clarifying the taxability of corporate guarantees to ensure compliance and mitigate uncertainties for businesses operating in a complex regulatory environment.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
Allowed, subject to all just exceptions.
Application stands disposed of.
W.P.(C) 2966/2024 & CM APPL. 12196/2024
1. Petitioner seeks a declaration that the activity of the holding company providing a Corporate Guarantee to a subsidiary is not in the nature of supply of services taxable under Section 9 of the Central Goods and Services Tax Act, 2017.
2. Petitioner also inter alia, impugns Circular dated 27.10.2023, whereby a clarification has been issued by the Central Board of Indirect Taxes & Customs pertaining to taxability of Personal Guarantee and Corporate Guarantee in GST.
3. Learned Senior Counsel for the petitioner submits that in the case of group company, the CESTAT Chennai in the case titled M/s Sterlite Industries India Ltd vs Commissioner of GST & Central Excise 2019 (2) TMI 1249 had held that the provision of only a Corporate Guarantee to an associate company is like an in-house guarantee and does not amount to providing any services.
4. Learned Senior Counsel further refers to the order dated 17.03.2023 of the Supreme Court in Civil Appeal (Diary No). 5258/2023 titled Commissioner of CGST & Central Excise Vs. M/s. Edelweiss Financial Services Ltd to contend that issuance of Corporate Guarantee to a group company without consideration would not fall within banking and other financial services and was thus held to be non-taxable service.
5. Learned counsel submits that by Notification dated 26.10.2023, Rule 28 of the Central Goods and Services Tax Act, 2017 has been amended. However, by the impugned Circular dated 27.10.2023 without amending the rule or the statute, the provision of Corporate Guarantee to associate has been made taxable and the value has been provided as 1% of the guarantee.
6. Learned counsel submits that the summons have been received under Section 70 of the CGST Act, 2017, requiring the petitioner to provide all information with regard to Corporate Guarantees provided till date. He submits that in response thereto, the Officers of the petitioner have already appeared and provided the requisite information.
7. Learned Senior Counsel further submits that the provision of Corporate Guarantee is in the nature of a contingent contract which is not enforceable till the guarantee is enforced by the entity to which the guarantee is provided. He further submits that the value of enforcement is not dependent on the value of the guarantee and it is only where the guarantee is enforced that the issue of service may arise, if at all and as such fixing a value at 1% of the Corporate Guarantee provided would put onerous burden on the entity providing the Corporate Guarantee.
8. Issue notice.
9. Notice accepted by the learned counsel appearing for the respondent, who prays time to file counter affidavit.
10. Let the same be filed within six weeks. Rejoinder within four weeks thereafter.
11. In the meantime, it is directed that no coercive action shall be taken against the petitioner in case a final assessment order is passed or a demand is created.
12. List on 08.07.2024.
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