Bombay HC Grants Stay on GST Circular for Corporate Guarantees




Loading

Bombay HC Grants Stay on GST Circular for Corporate Guarantees.

 

The Bombay High Court has delivered a crucial interim relief to Vedanta Ltd., staying the operation of Circular No. 204/16/2023-GST, which treated corporate guarantees (CG) provided by parent companies to subsidiaries as a taxable “supply of service” under Schedule I of the CGST Act, even without consideration.

Key Highlights:
Challenging the Rule & Circular:
Vedanta has challenged the vires of Rule 28(2) of the CGST Rules, 2017, and the Circular, terming the 1% valuation of the guaranteed amount as onerous and confiscatory. The company argues that such guarantees are primarily for protecting the parent’s investment, not a taxable supply under GST or Article 246A of the Constitution.

HC’s Interim Order:
The Court has stayed Item No. 2 of the Circular, which classified corporate guarantees as taxable services, and granted leave to amend the petition to challenge the retrospective amendment of Rule 28(2) and Circular No. 225/19/2024-GST.

 Judicial Precedents:
This isn’t the first instance where this Circular has faced legal scrutiny:

Telangana HC (Greenko Solar Power (Medak) Ltd): Stayed the Circular, granting relief to the assessee.
Punjab & Haryana HC (ACME Cleantech Solutions Pvt. Ltd): Similarly stayed the operation of the Circular and further taxability based on it.

Implications for Industry:
This stay offers temporary relief to companies grappling with GST implications on intra-group corporate guarantees. It also highlights ongoing judicial scrutiny of GST provisions that are perceived as overreaching.

The Copy of the order is as under:

Circular-No-204-16-2023 (2)

Circular - 225 19 2024




Menu