Corporate Guarantee to Subsidiary is supply in GST ? : Stay on Order, Matter Listed for Further Consideration

Summary in Key Points:

Issue: Is providing a corporate guarantee to a subsidiary company considered a supply under GST? If so, is it an intrastate supply or an interstate supply?
Facts: The assessee challenged an adjudication order and show cause notice related to providing a corporate guarantee to its subsidiary. They argued that it was not a supply and, even if it were, it would be an interstate supply subject to IGST, not CGST/SGST.
Decision: The court listed the matter for further consideration and directed the respondent authorities to file reply affidavits. In the meantime, the operation and effect of the impugned order were stayed.

Important Note: This interim order reflects the court’s cautious approach to the complex issue of whether a corporate guarantee constitutes a supply under GST and, if so, how it should be classified (intrastate or interstate). By staying the order and seeking further information from the respondent authorities, the court is taking steps to ensure a thorough examination of the issue before reaching a final decision. This highlights the evolving nature of GST law and its interpretation, particularly concerning the scope of “supply” and the place of supply in cases involving related parties.

HIGH COURT OF BOMBAY

Schloss HMA (P.) Ltd.

Union of India

B.P. COLABAWALLA and FIRDOSH P. POONIWALLA, JJ.

WRIT PETITION NO. 60 OF 2025

JANUARY 8, 2025

Rohan Shah, Sr. Adv., Mohammed Anajwalla, Vidushi Maheshwari, Kartik Vig and Sushant Murthy, Advs. for the Petitioner. Ashutosh Mishra, Advs., Ms. Jyoti Chavan, Addl.G.P. and Himanshu Takke, AGP for the Respondent.

ORDER

1. The above Writ Petition is filed seeking a declaration that the activity of the Petitioner issuing a corporate guarantee on behalf of its subsidiaries or related entities is not a “supply” under Section 7 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) and is not leviable to tax under Section 9 of the CGST Act. A further direction is sought that the impugned Circulars dated 27^th October 2023 and 11^th July 2024 as well as the impugned Rule 28 (2) of the CGST Rules and the impugned Notifications dated 26^th October 2023 and 10^th July 2024 are arbitrary and passed without the authority of law and violative of Articles 14 and 265 of the Constitution of India.

2. What is also assailed in the present Petition is the impugned/adjudication order dated 29^th August 2024 issued by Respondent No.5 as well as the subsequent show cause notice dated 11^th November 2024 also issued by Respondent No.5.

3. The first objection taken to the impugned order as well as the show cause notice is that in the present case, even assuming for the sake of argument that the activity of providing a corporate guarantee by the Petitioner to its subsidiaries or related parties is a supply of service, it is not a intrastate supply attracting the provisions of the State and the Central GST laws, but is an interstate supply which would attract the provisions of IGST Act. It is the case of the Petitioner that in the facts of the present case though this is an interstate supply if at all the provisions of the State GST laws as well as the Central GST laws have been invoked. This is the first objection to the impugned order dated 29^th August 2024 and the subsequent show cause notice dated 18^th November 2024. We must add here that, it is also the case of the Petitioner that the providing of the corporate guarantee on behalf of its subsidiary is not a supply of service at all under Section 7 of the CGST Act, and is, therefore, not leviable to tax under Section 9 of the CGST Act.

4. Ms.Chavan, the learned AGP appearing on behalf of the State sought time to file an affidavit in reply to the above Writ Petition and more particularly to the first objection raised in relation to whether in the facts of the present case the provisions of the IGST, Act would apply or the provisions of the CGST Act would apply. Acceding to her request, we direct that the affidavit in reply, if any, shall be filed within a period of four weeks from today and a copy of the same shall be served on the advocates for the Petitioner. If the Petitioner wants to file any affidavit in rejoinder, they may do so within a period of two weeks from the date of service of the affidavit in reply.

5. In the meanwhile and without prejudice to the rights an contentions of the parties, and until further orders, the operation and effect of the impugned order dated 29^th August 2024 and the impugned show cause notice dated 18^th November 2024 are hereby stayed.

6. Stand over to 18^th February 2025.

7. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.