Corporate guarantees without consideration fall outside taxable supply, while the valuation rule and circulars were upheld.

Corporate guarantees executed without any fee, commission or other consideration were treated as outside the scope of taxable supply under the CGST regime, because a taxable service requires both a supply and consideration. The Court also upheld the validity of Rule 28(2) of the CGST Rules, 2017 and the connected circulars, holding that fiscal delegated legislation carries a strong presumption of constitutionality and will not be struck down absent clear constitutional or statutory transgression. As the foundational premise of taxability failed on the facts, the show cause notice and summons issued against the petitioner were quashed.

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Issues: (i) Whether corporate guarantees executed without any consideration constituted a taxable supply of service under the CGST regime. (ii) Whether the challenge to Rule 28(2) of the CGST Rules, 2017 and the connected circulars was sustainable. (iii) Whether the show cause notice and summons issued against the petitioner could be sustained.

Issue (i): Whether corporate guarantees executed without any consideration constituted a taxable supply of service under the CGST regime.

Analysis: The dispute turned on the statutory meaning of supply, service, consideration and taxable supply under the CGST Act. The Court noted that the petitioner's guarantees expressly stated that no fee, commission or other consideration was received or would be received from the borrower. It further relied on the settled principle that a taxable service requires both a provider and a flow of consideration. The Court also drew support from the Supreme Court's treatment of corporate guarantees given without consideration, holding that such guarantees are in the nature of an in-house contingent arrangement and not a regular market service. On that basis, the Court held that absence of consideration was fatal to the revenue's attempt to tax the guarantees as services.

Conclusion: Corporate guarantees given by the petitioner without consideration were not liable to GST as taxable supplies of service.

Issue (ii): Whether the challenge to Rule 28(2) of the CGST Rules, 2017 and the connected circulars was sustainable.

Analysis: The Court examined the constitutional attack on the delegated amendment and the circulars governing valuation of corporate guarantees. It reiterated that fiscal legislation and subordinate legislation enjoy a strong presumption of constitutionality and that judicial review in taxation matters is limited. In the absence of a clear constitutional or statutory transgression, the Court declined to strike down the amendment. The Court therefore accepted the validity of the valuation framework itself, even while holding that the petitioner's guarantees were not taxable on the facts because no consideration had passed.

Conclusion: The challenge to Rule 28(2) and the connected circulars was rejected.

Issue (iii): Whether the show cause notice and summons issued against the petitioner could be sustained.

Analysis: Since the foundational premise of taxability failed on the facts of the case, the coercive proceedings based on the impugned notice and summons could not survive. The Court therefore set aside the notice and the summons, while leaving the validity of the rule-based framework intact.

Conclusion: The show cause notice and the summons were quashed.

Final Conclusion: The petition succeeded only to the extent of quashing the coercive proceedings against the petitioner, while the constitutional challenge to the valuation amendment and the connected circulars failed.

Ratio Decidendi: A corporate guarantee executed without any consideration does not amount to a taxable supply of service; however, a fiscal delegated provision will not be struck down as ultra vires absent a clear transgression of constitutional or statutory limits.

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