GST on Corporate Guarantee: Madras HC Quashes Order for Non-Consideration of CBIC Circulars, Remands to AO [Read Order]
While quashing the order on this limited ground, the HC remanded the matter back to the AO with directions to reconsider the petitioner’s submissions in light of both CBIC circulars.
GST on Corporate Guarantee - Madras HC - Order for Non-Consideration - CBIC Circulars - taxscan
GST on Corporate Guarantee - Madras HC - Order for Non-Consideration - CBIC Circulars - taxscan
In a matter of the levy of Goods and Services Tax ( GST ) on corporate guarantees, the Madurai Bench of the Madras High Court has set aside an assessment order passed holding that the authority failed to consider the relevant CBIC Circulars clarifying valuation rules under the CGST Act.
The petitioner, M/s. Shri Amman Steel and Allied Industries Private Limited, who had furnished a corporate guarantee in favour of a related company, contended that no consideration was received for such guarantee and that the recipient entity was eligible for full Input Tax Credit (ITC).
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Despite these submissions, the State Tax Officer (Roving Squad), Trichy, levied GST at 1% of the guarantee value, treating it as a taxable supply between related parties under Rule 28(2) of the CGST Rules, 2017.
In its defense, the assessee relied upon CBIC Circular No. 199/11/2023-GST dated 17.07.2023 and Circular No. 210/4/2024-GST dated 26.06.2024, which clarified the valuation of corporate guarantee transactions and the deemed value provisions under Rule 28.
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These circulars provide that where the recipient is eligible for full ITC and the transaction value is declared as nil or zero, the value shown in the invoice (or the declared value) shall be deemed to be the open market value, avoiding any notional valuation for tax purposes.
However, Justice G.R. Swaminathan noted that the Assessing Officer did not address or even refer to these circulars while passing the impugned order. The court observed that under well-settled principles of administrative law, failure to consider a specific defense raised by the assessee renders the order legally vulnerable.
While quashing the order on this limited ground, the High Court remanded the matter back to the Assessing Officer with directions to reconsider the petitioner’s submissions in light of both CBIC circulars and pass a fresh order on merits and in accordance with law after granting due opportunity of hearing.
The Court clarified that it had not entered into the merits of the levy itself, confining its ruling to the procedural infirmity arising from non-consideration of the assessee’s defense. The writ petition was accordingly allowed.
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