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The legal landscape surrounding the application of GST on corporate guarantees has taken a significant turn as the contentious issue has reached the High Court. This development marks a significant escalation in the ongoing dispute, which has been fraught with complexities and uncertainties since the implementation of the GST regime. As businesses grapple with the implications of GST on various financial transactions, the matter of corporate guarantees has emerged as a focal point of contention, prompting intense scrutiny and debate among legal experts, policymakers, and stakeholders alike. In this Article, we delve into understanding the background of litigation revolving around levy of GST on corporate guarantees along with its recent challenge in Hon’ble Delhi High Court.


Vide Circular No. 204/16/2023-GST dated 27th October 2023, CBIC clarified that where the corporate guarantee is provided by a company to the bank/financial institutions for providing credit facilities to the other company, where both the companies are related, the activity is to be treated as a supply of service between related parties. Further, in case where no consideration is charged for the said activity, it still falls within the ambit of ‘supply’ in line with Schedule I to the CGST Act.

For valuation of this supply, a new sub-rule was inserted to Rule 28 of the CGST Rules, 2017 vide Notification No. 52/2023-Central Tax dated 26th October 2023. Vide this Rule, the value of supply of such services was prescribed as 1% of the amount of such guarantee offered, or the actual consideration, whichever is higher.

These amendments ignited certain peculiar questions as to whether the clarification on taxability and deemed valuation of this activity is justified especially in light of the ongoing lack of clarity surrounding the basic parameters for levy of GST viz. ‘supply’, ‘recipient’, ‘valuation’, ‘time of supply’, ‘place of supply’ and of course ‘retrospective application of the amendment’.


The litigation has now escalated to Delhi High Court. The Court has accepted challenge to the said Circular and New Rule, in a writ petition filed in the case of M/s STERLITE POWER TRANSMISSION LIMITED v UOI & ORS. [W.P.(C) 2966/2024 dated 28th February 2024]. The main arguments of the petitioner were as follows:

  • Not a Supply: The petitioner sought declaration that providing a Corporate Guarantee to a subsidiary is not in the nature of supply of services taxable under Section 9 of the CGST Act, 2017.
  • Circular and New Rule Impugned: The petitioner challenged Circular No. 204 ibid, wherein levy of GST on Corporate Guarantees was clarified. The Petitioner also submitted that without amending the rule or the statute, the provision of Corporate Guarantee has been made taxable and the value has been deemed as 1% of the guarantee amount.
  • Cited Earlier Regime Judgments: The petitioner quoted a judgment by CESTAT, Chennai in one of its own case M/s Sterlite Industries India Ltd vs Commissioner of GST & Central Excise [Appeal No. ST/40042/2013 dated 19th February 2019], wherein it was observed that provision of a Corporate Guarantee to an associate company is like an in-house guarantee and does not amount to providing any services as such. The petitioner also referred to Supreme Court Order in Commissioner of CGST & Central Excise Vs. M/s. Edelweiss Financial Services Ltd [Civil Appeal (Diary No). 5258/2023 dated 17th March 2023] wherein it was held 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.
  • Guarantee is a Contingent Contract: The petitioner submitted 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. 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.

Upon hearing the petitioner, Notice was issued to the Government. The High Court also directed that no coercive action shall be taken against the petitioner in case a final assessment order is passed or a demand is created.

The case is now listed on 8th July 2024.


In this pivotal moment, all eyes turn to the Delhi High Court as it prepares to adjudicate on this crucial matter, potentially setting a precedent that could reverberate throughout the business landscape. Stakeholders eagerly await the court’s judgment as it is expected to provide clarity and guidance on this intricate matter. Notably, the earlier regime judgments cited by the petitioner were based on the laws prevalent at that time and may be distinguished in GST regime due to change in law provisions after enactment of GST.


Disclaimer: The information contained herein is not intended to be a source of advice and it is only for the convenience and educational purposes for the user. This is not an opinion to anyone and author is/ will not be responsible to anyone for any matter whatsoever regarding any reliance placed on this article.

Author Bio

The Author is a Chartered Accountant having commendable understanding of the vast provisions of GST laws, serving various clients by Advisory, Compliance and Healthcheck support, since the inception of GST regime. Completed PwC GST Taxation Executive Professional Certificate Course and several other View Full Profile

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April 2024