High Court Clarifies GST Treatment of Corporate Guarantees Without Consideration

• The High Court held that GST does not apply to corporate guarantees given by a company for related entities when no consideration, fee, or commission is charged, especially for periods before Rule 28 was amended.
• It distinguished corporate guarantees from bank guarantees, saying corporate guarantees are internal group support arrangements, while bank guarantees are commercial services provided for a fee.
• The Court said a corporate guarantee is contingent and only becomes enforceable on default; if there is no default, it remains a potential obligation.
• Relying on earlier Supreme Court rulings, the Court cancelled the tax notice and summons against the company, ruling that such no-consideration guarantees were not taxable under service tax and thus not under GST for the relevant period.
• The decision offers relief to companies facing scrutiny over intra-group guarantees, but leaves open how corporate guarantees will be taxed under GST going forward.

Source: vatabout.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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