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.
