GST on Croporate Guarantees: SC to Offer Clarity, say Officials

A clarity on the contentious provision of levying GST on corporate guarantees between two related entities will emerge only after the Supreme Court gives its final word on the subject, and until then, holding companies are likely to keep getting demand notices, a section of GST officials told ET.

Several companies caught in the crosshairs of the GST authorities got a sense of relief last week after the Punjab & Haryana High Court stayed operation of a central board of indirect taxes & customs (CBIC) circular clarifying on the validity of the levy. CBIC’s October 27, 2003, circular

Had clarified that a corporate guarantee, provided one company to banks or financial institutions to help an associate company secure a loan, even without a consideration, should be considered supply of service between related parties under the Schedule I of the CGST Act, 2017.

Ever since the CBIC put out the clarification, the GST authorities have started demanding GST at 18% on one percent of the value of corporate guarantees. The latest stay, issued in the case of Acme Cleantech Solutions, arises from a le- gal challenge the company mounted on both the constitutional validity of the guarantee as well as its valuation for levy of the impost.

The recent spate of stay orders from different courts in favour of petitioner companies would not prevent demand notices to other companies, GST officials in Bengaluru said, declining to be identified. The authorities, while acknowledging the recent stay order stopping the operation of the circular, said the subject would hang fire till it finally gets settled in the Supreme Court. “Until then, the stay order issued by the court in Chandigarh will only have a persuasive value in cases pending before other high courts,” the officials added.

Hundreds of petitions challenging the October 23 notification of CBIC are pending before high courts and most have not paid the taxes, they said. “We got very little revenue from this as most of the demand notices remain stayed by courts,” the official added.

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