No GST on corporate guarantees without consideration, when recipient is eligible for full ITC

The Hon’ble Madras High Court in the case of M/s. Amman Try Trading Company Private Limited, Represented by its Vice President V. Muruganantham, Tiruchirapallil Versus The State Tax Officer – V (RS), O/o. The Joint Commissioner (ST), Trichy - 2025 (10) TMI 1178 - MADRAS HIGH COURT held that the GST demand levied on corporate guarantee furnished without consideration was liable to be quashed due to Revenue's failure to consider the Petitioner’s submissions based on CBIC’s Circulars Nos: 199/11/2023-GST and 210/4/2024-GST clarifying the valuation of corporate guarantees between related persons under Rule

 28(2) of the CGST Rules, 2017 and the matter was remanded for fresh order on merits.

Facts:

M/s Amman Try Trading Company Private Limited, Trichy (“the Petitioner”) furnished a corporate guarantee to a related entity without consideration.

The State Tax Officer – V (Roving Squad), Intelligence Division, Trichy (“the Respondent”) issued a show cause notice and subsequently levied GST at 1% of the corporate guarantee amount, treating it as a taxable supply under the CGST Act.

The Petitioner contended that since the recipient was eligible for full input tax credit (ITC) and no invoice was issued, the transaction value was zero as per CBIC Circular No. 199/11/2023-GST  dated July 17, 2023 and Circular No. 210/4/2024-GST dated June 26, 2024, which clarify that the value for such corporate guarantee services between related persons should be deemed nil under certain conditions.

The Respondent contended that the GST demand was valid and did not consider the applicability of the said circulars in the impugned order.

The Petitioner challenged the demand order by filing a writ petition under Article 226 of the Constitution, alleging violation of the principles of natural justice and non-consideration of critical contentions.

Issue:

Whether the GST demand on corporate guarantee furnished without consideration can be sustained when the Petitioner relied on binding CBIC circulars clarifying valuation under Rule 28(2) of the CGST Rules?

Held:

The Hon’ble Madras High Court in M/s. Amman Try Trading Company Private Limited, Represented by its Vice President V. Muruganantham, Tiruchirapallil Versus The State Tax Officer – V (RS), O/o. The Joint Commissioner (ST), Trichy - 2025 (10) TMI 1178 - MADRAS HIGH COURTheld as under:

• Observed that, administrative and quasi-judicial orders must reflect due consideration of all material contentions and binding departmental circulars.
• Noted that, the Petitioner had submitted detailed contentions citing Circulars Nos. 199/11/2023-GST and 210/4/2024-GST that clarify that when corporate guarantees are furnished without consideration and the recipient is eligible for full ITC, the transaction value is to be considered zero.
• Held that, the Assessing Officer’s failure to consider such contentions renders the impugned order vulnerable under settled administrative law principles.
• Noted that, as per Rule 28(2) of the CGST Rules, 2017, which deems the value of supply of services by a supplier to a related person by way of corporate guarantee as one percent of the guarantee amount or actual consideration, whichever is higher, but provides that if the recipient is eligible for full ITC, the value declared in the invoice is deemed the open market value.
• Quashed the impugned GST demand order dated April 28, 2025 and remanded the matter back to the Respondent for reconsideration of the Petitioner’s submissions and passing of fresh reasoned order on merits.

Our Comments:

The judgment underscores the importance of reasoned decision-making by tax authorities, especially the mandatory consideration of binding circulars from the CBIC that clarify valuation for corporate guarantees between related persons. The circulars in question regulate the valuation under Rule 28(2), CGST Rules, 2017, critical for determining the transaction value for GST purposes when the corporate guarantee is furnished without consideration and the recipient claims full ITC. The court’s decision aligns with basic principles of administrative law and natural justice that require authorities to consider all defense and contentions raised, failing which orders become vulnerable to quashing.

Relevant Provisions:

Rule 28(2), Central Goods and Services Tax Rules, 2017

“28. Value of supply of goods or services or both between distinct or related persons, other than through an agent.

(1) …

(2) Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related person located in India, by way of providing corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered per annum, or the actual consideration, whichever is higher.

Provided that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the value of said supply of services.”

 (Author can be reached at [email protected])