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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.... dated 11.07.2024 issued by Government of India, Ministry of Finance, Department of Revenue, CBIC, GST Policy Wing. ****** In the reference cited, the Government of India, Ministry of Finance, Department of Revenue CBIC, GST Policy Wing, has issued Circular No 225/19/2024-GST, dated 11.07.2024 based on the recommendations of the GST Council. Hence, following pari-materia circular is issued. 2.1 As per the recommendations of the GST Council, sub-rule (2) was inserted in Rule 28 of Tamilnadu Goods and Services Tax Rules, 2017 (hereinafter referred to as the "TNGST Rules") vide G.O. (Ms) No.133, CT & R(B1) Dept, dated 08.12.2023 in TN Notfn No. SRO A- 38(a)/2023, dated 08.12.2023 published in Tamilnadu Government Extraordinary Gazette....
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....ll apply to the corporate guarantees issued prior to insertion of the said sub-rule on 26th October 2023? Also, where intra-group corporate guarantees have been issued before 26th October 2023, which are still in force today, would they be liable to pay GST on "1% of the amount of such guarantee offered" on such guarantees? It is to be clarified that the supply 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 taxable even before the insertion of sub-rule (2) in rule 28 of TNGST Rules with effect from 26th October 2023. Rule 28(2) of TNGST Rules is only for determination of the value of the taxable supply of providing corp....
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....s provided by the guarantor to the guarantee is that of taking on the risk of default. Therefore, it is clarified that the value of supply of the service of providing a corporate guarantee will be calculated based on the amount guaranteed and will not be based on the amount of loan actually disbursed to the recipient of the corporate guarantee. Further, it is also clarified that the recipient of the service of providing corporate guarantee shall be eligible to avail the ITC, subject to other conditions specified in the Act and the Rules made thereunder, irrespective of when the 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 t....
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....- guarantors, if the said amount of total consideration is higher than one per cent of the amount of such guarantee offered. In cases where the sum of the actual consideration is less than one per cent of the amount of such guarantee offered, then GST shall be payable by each co-guarantor proportionately on one per cent of the amount guaranteed by them. For instance, if there are two co- guarantors, A and B, who jointly provide a corporate guarantee to a banking/ financial institution on behalf a related recipient C for Rs. 1 crore, then A and B shall each pay GST on 0.5% of the amount guaranteed. However, if in the above case of A and B providing corporate guarantee jointly to a banking/ financial institution on behalf a related reci....
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....r ten years as per tenure of the loan? Rule 28(2) of TNGST Rules has been amended retrospectively with effect from 26th October 2023, vide G.O. (Ms) No. 114, CT&Regn. (B1) Dept. dated 30.09.2024 in Notification No. SRO A-18(a)/2024 dated 30.09.2024 published in Tamilnadu Government Extraordinary Gazette Issue No.316. Therefore, it is clarified that the value of supply of the service of providing corporate guarantee to a banking company or a financial institution on behalf of a related recipient shall be one per cent of the amount guaranteed per annum or the actual consideration, whichever is higher. Accordingly, the value of supply of the service of providing corporate guarantee to a banking company or a financial institution on be....
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....or the actual consideration, whichever is higher, on the issue of such corporate guarantee in the first year as well as on every renewal in subsequent years. 7 Whether the benefit of second proviso to sub- rule (1), which states that value declared in invoice is deemed to be the open market value in cases where full input tax credit is available to the recipient of services, is not applicable in cases falling under sub-rule (2)? Proviso has been inserted in sub- rule (2) of Rule 28 of TNGST Rules, retrospectively with effect from 26th October 2023 vide G.O. (Ms) No. 114, CT&Regn. (B1) Dept. dated 30.09.2024 in Notification No. SRO A-18(a)/2024 dated 30.09.2024 published in Tamilnadu Government Extraordinary Gazette Issue No.316, si....