Delhi HC issued notice to decide on the taxability of providing corporate guarantee by holding company to a subsidiary

The Hon’ble Delhi High Court heard the case of STERLITE POWER TRANSMISSION LIMITED & ORS. VERSUS UNION OF INDIA & ORS. - 2024 (3) TMI 1311 - DELHI HIGH COURT.

The Petitioner has filed a writ petition for declaration to the effect that the activity of the holding company providing a Corporate Guarantee to a subsidiary should not be considered as supply of services taxable under Section 9 of the Central Goods and Services Tax Act, 2017(“the CGST Act”).

The Counsel for the Petitioner relied upon the order dated March 17, 2023 passed by Hon’ble Supreme Court in the case of COMMISSIONER OF CGST AND CENTRAL EXCISE VERSUS M/S EDELWEISS FINANCIAL SERVICES LTD. - 2023 (4) TMI 170 - SC ORDER wherein it was contended that, issuance of Corporate Guarantee to a group company without consideration would not fall within banking and other financial services and therefore, is a non-taxable service.

The Counsel for the Petitioner argued 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. He further submits that 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, and fixing a value at 1% of the Corporate Guarantee provided would put onerous burden on the entity providing the Corporate Guarantee.

The Hon’ble Delhi High Court issued Notice and listed the matter for further hearing on July 08, 2024.

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