Corporate Bank Guarantee

[SUBHASISH SARKAR]

A Corporate Bank Guarantee has been issued by the Holding Company located in London UK on behalf of its subsidiary in India for availing Working Capital facilities in 2013. My query is, whether GST is applicable in case of BG is issued by an Overseas Entity for its subsidiary in India, whether ITC is available to the beneficiary, ie, the subsidiary, and how invoice will be raised to avail ITC. Also, Whether GST applicable under Rule 28(2) wef 26-10-2023 @ 18% of 1% of BG value for 2023-2024 and every FY thereafter. How will the value be determined prior to 26-10-2023 under rule 28.

[Shilpi Jain]

CG is a very big issue these days and the most sought after issue by the department as the stakes are very high.

Before the amendment of 1% in rule - can take a stand not liable.

Before or after - if recipient is eligible for full credit, even not issuing an invoice is sufficient compliance. So no need to worry.

[SUBHASISH SARKAR]

Thanks Madam for the clarity. However, any interest will be chargeable u/s 50 if GST for 2023-2024 is paid now ? I feel, since neither the section nor the rules nor the connected circulars specify any time limit for remittance of this liability, no interest should accrue. 

[KASTURI SETHI]

Pl. go through the following circulars :-

C.B.I. & C. Circular No. 204/16/2023-GST, dated 27-10-2023.

C.B.I. & C. Circular No. 225/19/2024-GST, dated 11-7-2024.

[Sadanand Bulbule]

I endorse the said CBIC Circulars referred by Sir.

[SUBHASISH SARKAR]

Kasturi Sir , thanks for the reply . I have gone thru the circulars which brings in sufficient clarity on the subject . However , my concern is whether any interest becomes applicable if I pay GST for 2023-24 now , ie , in Feb 25 , since neither circular specifies any timeline for payment .

[KASTURI SETHI]

Interest on delayed payment of tax has to be paid. It is implied.  We need circular only when anything is not clear in the Act or Rules or notification.

Interest is automatic.-------Orissa High Court in the case of P.K. Ores Pvt. Ltd. Vs. Commissioner of Sale Tax - 2022 (5) TMI 1293 - ORISSA HIGH COURT

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir,

NEW NOTIFICATION 225/19/2024-GST11 The GST council clarified during its 53rd meeting, held on June 22, 2024, that the facility of Rule 28(2) of the Central Goods and Services Tax Rules, 2017 concerning corporate guarantee issued between related persons is not available if either of the exports is involved, or recipient is eligible for complete ITC. After this recommendation, the Ministry of Finance issued Notification No. 12/2024 dated July 10, 2024 and Circular No. 225/19/2024-GST dated July 11, 2024, on taxability and valuation of intra-group corporate guarantees for GST purposes.

[Shilpi Jain]

Time of liability has to be deducted from the time of supply provisions u/s 13.

AI Summary

GST on corporate guarantees: valuation and ITC treatment clarified, limited relief where exports or full input credit apply.
GST liability on corporate guarantees depends on whether the guarantee is a taxable supply and the recipient's ITC eligibility; from 26 10 2023 a prescribed valuation method applies to intra group guarantees, while notifications and circulars exclude the concessional valuation where exports are involved or the recipient is eligible for full input tax credit. Interest for delayed payment is payable under general interest provisions and the time of liability follows time of supply rules.