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of <h1>GST on corporate guarantee payable once at contract execution under Rule 28(2), not periodically</h1> <h3>In Re: M/s. Green Infra Wind Farm Assets Limited.</h3> In Re: M/s. Green Infra Wind Farm Assets Limited. - TMI Issues Involved:1. Whether GST under reverse charge mechanism on issuance of corporate guarantee is payable one-time or on a periodical basis.2. Determination of the value of supply for GST purposes if it is to be paid periodically under reverse charge mechanism.Issue-wise Detailed Analysis:1. GST Liability on Corporate Guarantee: One-time or Periodical BasisThe applicant sought an advance ruling to determine whether GST under the reverse charge mechanism on the issuance of a corporate guarantee is payable once or periodically. The applicant argued that the corporate guarantee provided by the foreign group company is a one-time guarantee and not a continuous supply of service as per Section 2(33) of the CGST Act. The applicant emphasized that the guarantee is valid for a specified period without the need for periodic renewal, thus constituting a one-time supply.The jurisdictional officer supported the view that the provision of a corporate guarantee is not a continuous supply of service. The officer explained that the service is crystallized at the point of execution of the guarantee deed, and the benefit of the guarantee accrues to the principal debtor at that time. Therefore, GST liability should be discharged one-time at the time of execution of the contract.The ruling concluded that GST under the reverse charge mechanism is required to be paid one-time, considering that the guarantee is issued only once and is valid for a specified period without periodic renewal, in accordance with Rule 28(2) of the CGST Rules.2. Determination of Value of Supply for GST PurposesThe applicant also sought clarification on the methodology for determining the value of supply if GST is to be paid periodically. They proposed two methods: dividing the value of the loan equally among the relevant years of the guarantee or calculating GST on 1% of the total value of the loan in the first year and on 1% of the remaining outstanding value in subsequent years.The jurisdictional officer clarified that for corporate guarantees executed after 26.10.2023, GST under reverse charge mechanism is payable on 1% of the deemed total value of the loan on a one-time basis at the time of execution of the contract. This applies when the guarantor executes the contract without consideration for the benefit of a related party.The ruling emphasized that since GST is to be paid one-time, there is no need for periodic payment. The value of supply shall be determined based on Rule 28(2) of the CGST Rules, which mandates a one-time payment of GST on 1% of the deemed total value of the loan at the time of execution of the contract.Conclusion:The ruling clarified that GST under the reverse charge mechanism on the issuance of a corporate guarantee is payable one-time and not periodically, as the guarantee is a one-time issuance without periodic renewal. The value of supply for GST purposes is determined as 1% of the deemed total value of the loan at the time of execution of the guarantee contract, applicable for guarantees executed post 26.10.2023.
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