Summary: The Gujarat High Court in Torrent Power Ltd Vs Union of India & Ors. held that corporate guarantees furnished by a holding company to its subsidiary constitute a supply of services under the CGST Act and are subject to GST. Rule 28(2) of the CGST Rules, 2017 was held intra vires the CGST Act and Articles 14, 19(1)(g) and 265 of the Constitution, except that the expression “whichever is higher” was read down as arbitrary and ultra vires. The Court held that the levy of GST under Rule 28(2) on corporate guarantees furnished before 26 October 2023 is violative of Articles 14 and 19(1)(g), while the levy applies from that date where guarantees continue. Section 15(4) of the GST Acts was upheld as intra vires. The Court also held that corporate guarantees are not continuous supplies of services and that the relevant service is rendered in the capacity of an Insolvency Professional? [Not applicable.] The impugned Circulars dated 27.10.2023 and 11.07.2024 were set aside to the extent they contradicted the Court’s observations and directions. The Court further found the invocation of Section 74 in respect of a pre-GST corporate guarantee to be arbitrary and tainted with non-application of mind.
Rule 28(2) Corporate Guarantee GST Levy Read Down; Pre-2023 Levy Set Aside: Gujarat HC
