2025 (10) TMI 1178 - HC - GST

Order set aside for failing to consider no-consideration corporate guarantee claim; matter remitted for fresh adjudication on merits

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

HC set aside the assessing officer's order for failing to consider the petitioner's contention that no consideration was received for furnishing a ... Levy of GST - supply of service of corporate guarantee by the petitioner to their related entity - specific stand of the writ petitioner is that they did not receive any consideration for furnishing such corporate guarantee - HELD THAT:- The assessee / writ petitioner herein had contended that since the recipient is eligible for full ITC and the writ petitioner did not issue any invoice, and value of transaction has been taken as zero, the aforesaid circulars are applicable to the transactions in question. However, the assessing officer did not consider the applicability of these 2 circulars at all. It is a well settled principle of administrative law that when a defense raised by the noticee is not considered in the final order, the order is vulnerable on that ground. On the ground of non-consideration of the contentions raised by the assessee, the impugned order is set aside. The matter is remitted to the respondent. The respondent is directed to consider all the contentions raised by the assessee in the reply and pass order afresh on merits and in accordance with law - Petition allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether provision of a corporate guarantee by a supplier to a related recipient attracts Goods and Services Tax and, if so, the proper valuation of such supply under Rule 28 of the CGST Rules, 2017. 2. Whether Rule 28(2) of the CGST Rules, 2017 - deeming the value of corporate guarantee to related persons to be one per cent per annum of the guarantee amount or actual consideration, whichever is higher - applies where the recipient is eligible for full input tax credit and no invoice/consideration was issued by the supplier. 3. Whether administrative circulars relied upon by the supplier (Circular No.199/11/2023-GST dated 17.07.2023 and Circular No.210/4/2024-GST dated 26.06.2024) are applicable to the transaction and required consideration by the assessing authority. 4. Whether failure by the assessing authority to advert to and decide specific defenses raised by the assessed person vitiates the impugned order and warrants setting aside and remittal for fresh decision. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of GST to corporate guarantees and statutory valuation regime Legal framework: Sectional GST framework recognizes services between related persons as taxable where supply is made; valuation rules for related-party transactions are contained in Rule 28 of the CGST Rules, 2017 which prescribes open market value, value of like kind and quality, and fallback to rules 30/31; Rule 28(2) specifically deems the value of corporate guarantee by a supplier to a related person (located in India) to be one per cent per annum of the guarantee amount or actual consideration, whichever is higher. Precedent Treatment: No prior judicial authorities are invoked or considered in the judgment on the substantive taxability question; the Court relies on the statutory text of Rule 28 and administrative practice as reflected in circulars. Interpretation and reasoning: The Court recognizes that Rule 28(2) directly deals with valuation of corporate guarantees provided by a supplier to a related person. The assessee's factual stance is that no consideration was received; the assessing officer held tax at 1% of guarantee amount. The Court does not decide the merits of whether GST is properly chargeable on the facts or whether Rule 28(2) was correctly applied substantively; instead the Court focuses on procedural defects in the assessing order (see Issue 4) and the need to consider the assessee's submissions including reliance on circulars. Ratio vs. Obiter: The recognition that Rule 28(2) governs valuation of corporate guarantees is ratio insofar as it frames the statutory test to be applied; however, specific application to the facts was not undertaken and remains open. Conclusions: The Court leaves substantive determination of taxability and correct application of Rule 28(2) to the authority on remand, requiring that the authority consider the assessee's contentions and relevant circulars before reaching a decision. Issue 2 - Effect of recipient's eligibility for full input tax credit and absence of invoice/consideration on valuation Legal framework: Rule 28 contains a proviso that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value; the second proviso to sub-rule (2) similarly deems the invoice value to be the value where recipient is eligible for full ITC. Precedent Treatment: No judicial authority adjudicating the interplay of the proviso with Rule 28(2) is cited or decided in the judgment. Interpretation and reasoning: The petitioner contended that because the recipient was eligible for full ITC and no invoice was issued (value taken as zero), the circulars and provisos apply to render the transaction non-taxable or valued at zero. The Court did not resolve this interpretive contention on the merits but held that the assessing officer failed to consider the contention and the circulars. The Court emphasizes that such contentions must be adjudicated by the authority in the first instance. Ratio vs. Obiter: The observation that the provisos are relevant and require consideration is ratio with respect to the procedural directive to the authority; any substantive rules about how the proviso operates (e.g., whether invoice absence precludes its operation) remain undecided (obiter by implication) and remitted for decision. Conclusions: The question whether recipient's eligibility for full ITC and absence of invoice negates valuation under Rule 28(2) is left for fresh consideration by the assessing authority, with directions to consider statutory provisos and circulars. Issue 3 - Applicability and mandatory consideration of administrative circulars relied upon by the assessee Legal framework: Administrative circulars interpret and explain GST law and are part of the material the assessing authority must consider when dealing with taxpayer objections; they do not supplant statute but guide application. Precedent Treatment: The Court invokes the settled administrative-law principle that defenses raised by a noticee must be considered; failure to consider them renders the order vulnerable. No case law is cited but the principle is treated as established administrative-law doctrine. Interpretation and reasoning: The petitioner placed reliance on Circular No.199/11/2023-GST and Circular No.210/4/2024-GST. The assessing officer did not consider those circulars in the final order. The Court held that non-consideration of defenses and relied materials is a fatal procedural defect because it denies fair adjudication of the statutory and interpretive points raised by the assessee. Ratio vs. Obiter: The principle that the assessing authority must consider the taxpayer's plea and relied circulars is ratio and dispositive of the relief granted; the Court's direction to re-adjudicate after considering those circulars is a binding procedural holding in this judgment. Conclusions: The assessing authority must consider the circulars and all contentions raised by the assessee on remand and decide on merits in accordance with law. Issue 4 - Procedural fairness: effect of non-consideration of defenses on the validity of the assessing order Legal framework: Principles of administrative law require reasoned decisions that address material submissions made by parties; omission to consider material defenses undermines legality of administrative orders and warrants quashing/remittal. Precedent Treatment: The Court treats this as a well-settled principle of administrative law; no contrary precedents are identified or overruled. Interpretation and reasoning: The Court finds that the assessing officer issued a show cause notice and received a reply in which the assessee relied upon statutory provisions and circulars, but the final order does not address those contentions. The Court reasons that such omission renders the order vulnerable because the authority failed to adjudicate material points raised by the noticee. Ratio vs. Obiter: The conclusion that the impugned order is vitiated by non-consideration of the assessee's contentions is ratio and forms the basis for setting aside the order and remitting the matter for fresh consideration. Conclusions: The impugned assessing order is set aside on procedural grounds; the matter is remitted to the assessing authority with a direction to consider all contentions raised by the assessee and pass a fresh order on merits and in accordance with law. The Court expressly does not decide the substantive merits.