Corporate guarantee taxability challenge secured interim stay on the circular pending further reply.

The challenge to the circular on taxability of corporate guarantees given by a holding company to its subsidiary was treated as warranting interim protection because the issue was recurring before several High Courts and similar relief had already been granted in other matters. The respondents stated that they were not pursuing the information notice further in view of the final audit report, and the Court granted time for affidavit-in-reply on the contention that the activity is not a taxable supply or supply of service. The effect and operation of the circular dated 27 October 2023, insofar as Item No. 2 is concerned, was stayed until further orders, and the petition remained pending for reply.

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Issues: Whether the challenge to the circular concerning taxability of corporate guarantees given by a holding company to its subsidiary warranted interim protection, and whether the impugned information notice required further consideration.

Analysis: The respondents stated that they were not pursuing the notice further in view of the final audit report. The Court nevertheless noted that the controversy regarding taxability of corporate guarantees was a recurring issue pending before several High Courts and that similar interim protection had been granted in other matters. In that context, the Court granted time for affidavit-in-reply on the challenge to the circular and on the plea that such activity is not a taxable supply or supply of service.

Outcome: The effect and operation of the impugned circular dated 27 October 2023, insofar as Item No. 2 is concerned, was stayed until further orders, and the petition was kept pending for reply.

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