A Division Bench of the Punjab and Haryana High Court has issued an interim order staying a circular issued by the Central Board of Indirect Taxes and Customs ( CBIC ) concerning the tax treatment of corporate guarantees exchanged between related parties.
This move comes in a petition filed by M/S ACME CLEANTECH SOLUTIONS PVT LTD against the Union of India and others.
The CBIC circular, dated October 27, 2023 (referred to as Annexure P-2), had outlined that the provision of a corporate guarantee without any payment between related companies should be treated as a service.
This interpretation had raised questions about the tax implications and procedural aspects of such transactions.
During the court proceedings, Senior Advocate Mr. Sujit Ghosh and a team of advocates representing the petitioner relied on previous legal precedents, including the case of Union of India Vs. Karvy Stock Broking Ltd (2019), to argue against the circular. They contended that the circular encroached upon the adjudicatory powers of the Assessing Authority and the Appellate Authority, undermining the purpose of filing appeals.
The Division bench, comprising Justice Sanjeev Prakash Sharma and Justice Sukhvinder Kaur, granted an interim stay on the effect and operation of Item No.2 of the impugned Circular dated October 27, 2023.
This stay allows the Appellate Authority to proceed with the case independently without being influenced by the controversial clarification.
The core issue revolves around whether the provision of a corporate guarantee without consideration should be deemed a taxable supply under the CGST Act.
Experts have pointed out ambiguities regarding the taxable value of corporate guarantees, especially when the guaranteed amount exceeds actual utilization by the beneficiary.
The matter is now listed for hearing on notice of motion for 20 August, 2024.
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