TaxTMI 
TaxTMI 
Clarification on various issues pertaining to taxability and valuation of supply of services of providing corporate guarantee between related persons.
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....ices of providing corporate guarantee between related persons. 1.1 As per the recommendations of the GST Council, sub-rule (2) was inserted in Rule 28 of Uttar Pradesh Goods and Services Tax Rules, 2017 (hereinafter referred to as the "UPGST Rules") vide Notification No. 207/XI-2-24-9(42)/17-T.C.69-U.P.GST Rules-2017-Order-(315)-2024 Dated : February 27, 2024 (w.e.f. 26.10.2023 ) to provide for a specific clause for valuation of supply of services of providing corporate guarantee to any banking company or financial institution by an entity on behalf of a related person. Besides, Circular No. 2425023 dated 16.07.2024 was also issued as per the recommendations of the GST Council, to provide clarity regarding the applicability of the said s....
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....n rule 28 of UPGST Rules with effect from 26th October 2023. Rule 28(2) of UPGST Rules is only for determination of the value of the taxable supply of providing corporate guarantee to any banking company or financial institution by a supplier to a related recipient, on behalf of the said recipient and not regarding the taxability of the said supply itself. Prior to the insertion of the said sub-rule, i.e., before 26th October 2023, the valuation of service of providing corporate guarantee to any banking company or financial institution by a supplier to a related recipient, on behalf of the said recipient, was to be done as per the provisions of Rule 28 of UPGST Rules, as it existed then. Therefore, in respect of supply of services of pro....
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.... loan is actually disbursed to the recipient, and irrespective of the amount of loan actually disbursed. 3 In the case of takeover of existing loans, since there is merely an assignment of an already issued corporate guarantee, whether GST would be applicable again? In the service of providing corporate guarantee to any banking company or financial institution by a supplier to a related recipient, on behalf of the said recipient, the supplier of the service is the corporate entity providing the corporate guarantee and the recipient is the related entity for whom the corporate guarantee is provided by the said supplier. Therefore, if the loan issued by the banking company/financial institution is taken over by another banking com....
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.... guaranteed. However, if in the above case of A and B providing corporate guarantee jointly to a banking/financial institution on behalf a related recipient C for Rs 1 crore, A provides guarantee for 60% of the guarantee amount and B provides guarantee for the remaining 40% of the guaranteed amount, then GST shall be payable by A and B proportionately i.e., 0.6% and 0.4% of the amount guaranteed. This is to say that A shall pay GST on 1% of the amount guaranteed by A, i.e., 1% on Rs. 60 lakhs and B shall pay GST on 1% of the amount guaranteed by B, i.e., 1% on Rs. 40 lakhs. 5 Where intra-group corporate guarantee is issued, whether GST may be paid by the recipient under reverse charge, as in the absence of actual invoice and paymen....
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....ion on behalf of a related recipient for a particular number of years shall be one per cent of the amount of such guarantee offered multiplied by the number of years for which the said guarantee is offered or the actual consideration whichever is higher. In addition to the above, in cases where the corporate guarantee is provided for a period less than a year, say 6 months (half a year), then in those cases as well, the valuation may be done on proportionate basis for the said period, i.e., in this case, the value of the said supply of services may be taken as half of one per cent of the amount of such guarantee offered (6/12 * one per cent), or the actual consideration, whichever is higher. To illustrate the same, if a corporate guar....
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....of service of corporate guarantees provided between related persons. Accordingly, it is clarified that in cases involving the supply of service of corporate guarantees provided between related persons, where full input tax credit is available to the recipient of services, the value declared in the invoice shall be deemed to be the value of supply of the said service. 8 Whether the valuation in terms of Rule 28(2) of UPGST Rules will apply to the export of the service of providing corporate guarantee between related persons? As per the amendment done in sub-rule (2) of rule 28 of UPGST Rules retrospectively w.e.f. 26th October 2023 vide notification No. 721 dt 26.10.2024, the provisions of the said sub-rule will not apply in case....