Guarantee commission for state government loan guarantees exempt from GST under Entry 34A and CBIC clarification

The authority examined whether guarantee commission paid by a State government undertaking to the state for loan guarantees is taxable under GST and, applying the exemption under the central tax notification as amended and the CBIC Circular clarification, concluded that guarantee commission paid to the State for guarantees given on issuance of bonds falls within the exemption for services by the State to its undertakings. The reasoning rests on the explicit scope of the notification and the CBIC clarification, and the outcome is that such guarantee commission is not subject to GST.

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Issues: Whether the guarantee commission payable by The Andhra Pradesh Mineral Development Corporation Limited (APMDC) to the Government of Andhra Pradesh, in respect of guarantees provided for issuance of bonds, qualifies for exemption from levy of GST under Entry No. 34A of Notification No. 12/2017-Central Tax (Rate), as amended by Notification No. 14/2018-Central Tax (Rate) dated 26.07.2018, read with Circular No. 154/10/2021-GST dated 17.06.2021.

Analysis: The application concerns a State government undertaking receiving guarantees from the Government of Andhra Pradesh for debentures issued by the undertaking. Entry No. 34A of Notification No. 12/2017-Central Tax (Rate), inserted by Notification No. 14/2018-Central Tax (Rate), provides an exemption for services supplied by the Central Government, State Government or Union territory to their undertakings or PSUs by way of guaranteeing loans taken by such undertakings from financial institutions. The CBIC clarification in Circular No. 154/10/2021-GST confirms that guaranteeing of loans by Central or State Governments for their undertakings or PSUs is covered by Entry 34A. The factual record establishes that APMDC is a State Government undertaking and that guarantees for bonds have been extended by the Government of Andhra Pradesh subject to payment of guarantee commission as per the government order. The Authority examined the statutory entry, the amendment notification and the CBIC circular and applied them to the admitted facts of guarantee extended by the State to its undertaking.

Conclusion: The guarantee commission payable by APMDC to the Government of Andhra Pradesh in respect of guarantees provided for issuance of bonds is exempt from GST under Entry No. 34A of Notification No. 12/2017-Central Tax (Rate), as amended by Notification No. 14/2018-Central Tax (Rate) dated 26.07.2018, read with Circular No. 154/10/2021-GST dated 17.06.2021.

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