Madras HC: No GST on Corporate Guarantees Without Consideration if Recipient is Eligible for Full ITC
Amman Try Trading Company Private Limited v. State Tax Officer – V (Roving Squad)
Madras High Court
October 06, 2025
Summary of the Ruling:
The Madras High Court quashed a GST demand levied on a corporate guarantee provided without consideration to a related party. The Court held that the tax authorities failed to consider binding CBIC circulars which clarify that such transactions have a “Nil” value for tax purposes if the recipient is eligible for full Input Tax Credit (ITC).
Key Takeaways:
The Issue: The petitioner provided a corporate guarantee to a related entity without charging any consideration. The GST department treated this as a taxable supply and levied tax at 1% of the guarantee amount.
Petitioner’s Defense: The company argued that under Rule 28(2) of the CGST Rules, 2017, and clarified by CBIC Circular No. 199/11/2023-GST (and Circular No. 210/4/2024-GST), the value of such a supply is deemed to be the invoice value (which can be zero) if the recipient is eligible for full ITC.
Court’s Observations:
Binding Nature of Circulars: The Court emphasized that administrative orders must reflect due consideration of binding departmental circulars.
Valuation Rule: It reiterated that for corporate guarantees between related persons, if the recipient is eligible for full ITC, the value declared in the invoice is deemed to be the open market value. Therefore, if no consideration is charged (zero value), the taxable value is zero.
Violation of Natural Justice: The Assessing Officer’s failure to address these critical submissions rendered the order vulnerable.
Outcome: The demand order was set aside, and the matter was remanded back to the tax authority to pass a fresh, reasoned order after considering the relevant circulars.