A Division Bench of the Telangana High Court has held that the company is liable to pay Goods and Services Tax (GST) under Reverse Charge Mechanism (RCM) for personal guarantees furnished by the director of a company.
The petitioner in the instant case is banking on the personal properties provided by the Managing Director as security and personal guarantee provided for the company seeking exemption from payment of GST.
The petitioner sought relief of writ petition under Article 226 of the Constitution of India, challenging the legality of the impugned order passed by the 1st respondent, The Superintendent of Central Tax at Hyderabad.
The order, dated 31.03.2023, pertained to an audit conducted under the GST Act, focusing on the non-payment of GST on the Guarantee/Security provided by the Managing Director. The petitioner argued that such taxation was illegal, arbitrary, and violated the provisions of the Central Goods and Services Tax Act.
The counsel for the respondent-Department had produced the Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017 wherein the Government of India, Ministry of Finance (Department of Revenue) had notified in the table certain categories of supply of services supplied by a person to be leviable of tax on the reverse charge basis.
“Services supplied by a director of a company or a body corporate to the said company or the body corporate” was notified to be a category of service, wherein the director is the supplier and the company is the recipient of the service.
The Division Bench of Justice P Sam Koshy and Justice Laxmi Narayana Alishetty observed that, “A plain reading of the notification referred to in the preceding paragraphs would clearly give an indication that the Central Government vide the said notification had specifically notified that the services provided by the Director of a company to the said company or the body corporate be leviable of tax on reverse charge basis and in the said event, the company would become liable to pay the tax for the said services. The said notification is also not under challenge and the same still holds good.”
Thus it was held that the services provided by the director of a company as personal guarantee by providing the personal properties as securities to bank for the company or body corporate is liable to Goods and Services Tax under Reverse Charge Mechanism, dismissing the writ petition against the assessee.
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