Case Law Details
Vedanta Limited Vs Union of India & Ors. (Bombay High Court)
Vedanta Limited filed a writ petition challenging the imposition of Goods and Services Tax (GST) on the activity of providing corporate guarantees to its subsidiary under Section 9 of the Central Goods and Services Tax Act, 2017 (CGST Act). The petitioners sought a declaration that such activities should not be considered as “supply” or “supply of service” subject to taxation. They also contested the constitutional validity of a circular issued on 27th October 2023 that called for the tax to be levied, claiming it violated multiple provisions of the Constitution of India. The petitioners further challenged a notice from the Assistant Commissioner seeking information on corporate guarantees provided from July 2017 to March 2021.
During the hearing, the Respondents, represented by their counsel, informed the court that the audit process had concluded, and no further action would be taken based on the notice issued in February 2024. In light of this, the court acknowledged that the specific matter may not be relevant anymore but noted that the issue raised in the petition was recurring and pending in various High Courts. The Delhi, Telangana, and Punjab and Haryana High Courts had already passed orders staying the operation of the circular, highlighting the significance of the matter. The Bombay High Court granted time to the Respondents to file an affidavit-in-reply to address the constitutional challenge and the issue of corporate guarantees being taxable under GST. Meanwhile, the court stayed the effect of the impugned circular concerning item number 2 until further orders, providing temporary relief to Vedanta Limited. The case is ongoing, with the next steps involving further legal submissions.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. The above Writ Petition is filed by the Petitioner seeking a declaration that the activity of a holding company providing a corporate guarantee to its subsidiary is not in the nature of “supply” and/or “supply of service” taxable under Section 9 of the Central Goods and Services Tax Act, 2017 (for short “the CGST Act”). A further declaration is sought that the Respondents be restrained from collecting tax under Section 9 of the CGST Act on the activity of providing corporate guarantees to subsidiary companies. A challenge is also laid to the impugned circular dated 27th October 2023 under which the tax is sought to be levied and collected as unconstitutional, ultra vires and violative of Articles 14, 19(1)(g), 246A, 265 and 300A of the Constitution of India. Since the notice dated 1st February 2024 has been issued to the Petitioner seeking certain information from the Petitioner for the period 1st July 2017 till March 2021 in relation to corporate guarantees given by the Petitioner, the said notice is also challenged.
2. The learned advocate appearing on behalf of the Respondents submitted that since the Final Audit Report [of the audit conducted] has been issued, the office of the Assistant Commissioner (Circle-VI), CGST Audit-I Commissionerate Pune is not pursuing the matter arising out of the letter dated 1st February 2024 and which is impugned in the said Writ Petition. He submitted that since the Respondents are not pursuing the matter further, nothing would survive in the above Writ Petition.
3. We record the statement made by the learned counsel, and which is made on instructions, that the Respondents are not pursuing the matter any further arising out of the letter dated 1st February 2024. However, we find that the issue involved in the present Petition is a recurring issue. This issue is pending before the several High Courts. The Delhi High Court has in fact granted a stay that no coercive action shall be taken against the Petitioner in case a final assessment order is passed or a demand is created. The Telangana High Court has stayed the effect and operation of the circular dated 27th October 2023. Even the Punjab and Haryana High Court has stayed the effect and operation of the impugned circular 27th October 2023.
4. Considering that this is an important issue, we grant time to the Respondents to file their affidavit-in-reply to the above Writ Petition in so far as it lays a challenge to the circular dated 27th October 2023 and also to the extent that the Petitioner seeks a declaration that the activity of a holding company providing a corporate guarantee to a subsidiary is not in the nature of “supply” and/or “supply of service” taxable under Section 9 of the CGST Act. The reply shall be filed within a period of 6 weeks from today.
5. In the meanwhile and until further orders, the effect and operation of the impugned circular dated 27th October 2023, in so far as it relates to Item No.2 thereof, is hereby stayed.
6. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
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