GST on Bank Guarantee between two unrelated Indian Companies.

[KALLESHAMURTHY MURTHY K.N.]

Sirs, 

Company “A” has provided a Bank guarantee with Citibank Dubai to an unrelated Company “B”. Both are situated in India. The bank guarantee is either for consideration or without consideration. Whether GST is payable, and if so, what tax, whether IGST or CGST+SGST and who is liable to pay tax?

[Shilpi Jain]

Is it a corporate guarantee? For what purpose is the guarantee given. Further facts required to comment further.

[KALLESHAMURTHY MURTHY K.N.]

Dear Shilpi Madam, 

Sorry for the incomplete information supplied. 

It is a Corporate Guarantee provided for business promotion.

[Sadanand Bulbule]

Dear Murthy

Plz refer CBIC Circular No. 204/16/2023-GST dated 27.10.2023

[KALLESHAMURTHY MURTHY K.N.]

Sir,

I read the Circular.  After reading it, doubts were raised since the Bank Guarantee took place in Dubai and between unrelated persons.  

i. Determination of the place of supply.  Both companies are in India, but the Bank Guarantee is with the Bank in Dubai. Whether the Supply of Service terminates at Dubai or at the location of the Recipient. 

ii. The tax liability lies with the recipient under RCM since it would serve as an import of service, i.e. IGST, or the service providing company has to pay GST, i.e. CGST and SGST. 

[Sadanand Bulbule]

Dear

My considered opinion is like this:

The issuance of a Bank Guarantee by the Dubai-based Bank constitutes an import of financial service under the provisions of the IGST Act, 2017. The service provider is located outside India, while the recipient is situated in India, and the place of supply, as determined under Section 13(2) of the IGST Act, is the location of the recipient. Accordingly, all three conditions under Section 2(11) stand fulfilled.

The transaction, therefore, qualifies as an import of service, and the Indian recipient is duly liable to discharge IGST under the Reverse Charge Mechanism (RCM) in terms of Section 5(3) of the IGST Act read with Notification No. 10/2017-IGST (Rate).

The supply of service does not terminate in Dubai, as the benefit and consumption of the guarantee service occur in India.

I appreciate your analysis.

[KALLESHAMURTHY MURTHY K.N.]

Sri Sadananda Bulbule Sir,

Doubts are cleared. Thank you very much, Sir. 

[Jeyo Tak]

If the guarantee is given for consideration, GST applies as it counts as a service if both companies are in the same state. If there’s no payment involved, then GST doesn’t apply.

[KASTURI SETHI]

This is with reference to serial no.2.1 above. In order to determine the place of supply, one of the major factors is where service has been received and enjoyed.

I endorse the wonderful analysis and conclusion by Sh.Sadanand Bulbule, Sir.

AI Summary

Foreign bank guarantee to Indian recipient treated as import of service; IGST under reverse charge, domestic guarantees attract CGST/SGST A corporate bank guarantee issued by a foreign bank for the benefit of an Indian recipient is treated as an import of service, with the place of supply at the recipient's location; IGST is payable by the Indian recipient under reverse charge. If the guarantee is provided by an Indian supplier to an Indian recipient, it is a domestic taxable supply attracting CGST and SGST, payable as per normal rules (supplier liability unless notified otherwise). Where no consideration is involved, taxation is generally contested and may not arise, but facts and contractual terms should be examined to confirm taxability.