D P Jain & Co. Infrastructure Private Limited Vs Union of India (Bombay High Court)
The Bombay High Court partly allowed the writ petition filed by D.P. Jain & Co. Infrastructure Pvt. Ltd. challenging GST proceedings on corporate guarantees issued in favour of banks for loans granted to its subsidiary and related companies. The petitioner had executed three corporate guarantees between 2020 and 2022 for loans sanctioned by the State Bank of India and Bank of Maharashtra for highway and toll road projects. Each corporate guarantee deed specifically stated that the petitioner had neither received nor would receive any security, fee, commission, or consideration from the borrower companies for providing the guarantees.
The petitioner challenged Circular No. 204/16/2023 dated 27.10.2023 and Circular No. 225/19/2024-GST dated 11.07.2024, under which corporate guarantees were treated as taxable supplies of service under GST, even when issued without consideration between related parties. The petitioner also challenged Rule 28(2) of the CGST Rules inserted through Notification No. 52/2023 dated 26.10.2023 and amended retrospectively through Notification No. 12/2024 dated 10.07.2024.
According to the petitioner, corporate guarantees amounted to actionable claims and therefore could not be treated as taxable services under the CGST Act. The petitioner argued that GST liability cannot be created merely through a circular and that the guarantees were contingent contracts enforceable only upon borrower default. It was further contended that no consideration had flowed from the subsidiaries to the petitioner and therefore the transaction lacked an essential ingredient of “supply” under Section 7 of the CGST Act.
