Personal guarantee (director) is liable to RCM under GST: Telangana HC

BST Steels Pvt. Ltd Vs Superintendent of Central Tax (Telangana High Court)

Telangana High Court upholds GST liability on director’s personal guarantee. Ruling supports Reverse Charge Mechanism (RCM) under GST. Read the full judgment.

Introduction: The Telangana High Court, in the case of BST Steels Pvt. Ltd vs. Superintendent of Central Tax, upheld the liability of a director’s personal guarantee to Reverse Charge Mechanism (RCM) under the Goods and Services Tax (GST). The petitioner contested the requirement to pay GST on the personal guarantee and security provided by the Managing Director to a bank.

Background: The petitioner challenged the order of the Superintendent of Central Tax, which rejected the contention that GST was not applicable to the personal guarantee and security provided by the Managing Director. The order was affirmed by the Additional Commissioner (Appeals-II).

Legal Analysis: During the hearing, the respondent-Department referred to Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017. The notification specified certain categories of services supplied by a person to be subject to tax under the reverse charge basis. Notably, it included services supplied by a director of a company or a body corporate to the company or body corporate, making the company liable to pay tax.

Court’s Decision: The Court, after considering the notification, concluded that the services provided by the Director of a company, including personal guarantee and security, were subject to tax under reverse charge. The petitioner’s reliance on personal properties provided as security and personal guarantee for exemption from GST was not accepted.

Conclusion: The Court found no error or arbitrariness in the orders of the tax authorities and upheld the liability of the company to pay GST under the reverse charge mechanism. The writ petition was rejected, and no costs were imposed.