GST implication on cross charge/mortgage provided for related party borrowing

[Dipika Shetye]

The financial statements disclose that the company had provided a cross charge/security for borrowings availed by a related party, which continues to remain outstanding. The disclosure refers only to a cross charge/security and does not specifically mention a corporate guarantee.

Whether creation of such cross charge/mortgage in favour of the lender for securing a related party's loan can be regarded as a corporate guarantee or taxable supply under GST.

[Sadanand Bulbule]

Encumbering immovable property/securities is outside the domain of GST regime. So it does not attarct 1% tax.

[Sadanand Bulbule]

Refer the following judgement on Corporate Guarantee:

2026 (8) TMI 990 - GUJARAT HIGH COURT

Torrent Power Ltd Versus Union Of India & Ors.

AI Summary

Cross charge security for related-party borrowings raises questions on corporate guarantee characterisation and taxable supply treatment under GST.
GST treatment of a cross charge or mortgage created by a company to secure outstanding borrowings of a related party is considered. The issue is whether such lender-facing security, not expressly described as a corporate guarantee, may be characterised as a corporate guarantee or a taxable supply under GST.