Manappuram Finance Ltd. Vs Union of India (Kerala High Court)
Summary: In the case of Manappuram Finance Ltd. v. Union of India, the Kerala High Court addressed whether GST applies to services provided by a company’s director in the form of a personal guarantee for loans or to intercompany loans extended by the company. Manappuram Finance received a show-cause notice demanding GST under the Reverse Charge Mechanism (RCM) for these transactions. The company argued that CBIC circulars, issued in October 2023 and June 2024, exempt these services from GST. The October circular states that no GST applies to directors’ personal guarantees, as these transactions lack direct monetary consideration. Similarly, the June circular exempts loans extended between related entities, where consideration is limited to interest or discount. The court upheld these CBIC guidelines, ruling that the GST demand was invalid. The decision aligns with the GST Council’s clarifications on related-party transactions, indicating that personal guarantees by directors and intercompany loans fall outside GST’s scope when no direct compensation is involved. Additionally, RBI guidelines discourage directors from receiving any form of commission or brokerage for personal guarantees. Consequently, the Kerala High Court quashed the show-cause notice, emphasizing adherence to CBIC circulars and RBI guidelines on these transactions.
