GST on corporate guarantees: Taxmen believe clarity will emerge only in SC
GST on corporate guarantees between two related entities will emerge only after the supreme court gives its final word on the subject, and until then, holding companies are likely to keep getting demand notices, a section of GST officials told ET.
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Several companies caught in the crosshairs of the GST authorities got a sense of relief last week after the Punjab & Haryana High Court stayed operation of a central board of indirect taxes & customs (CBIC) circular clarifying on the validity of the levy.
CBIC’s October 27, 2003, circular had clarified that a corporate guarantee, provided by one company to banks or financial institutions to help an associate company secure a loan, even without a consideration, should be considered supply of service between related parties under the Schedule I of the CGST Act, 2017.
Ever since the CBIC put out the clarification, the GST authorities have started demanding GST at 18% on one percent of the value of corporate guarantees.
The latest stay, issued in the case of Acme Cleantech Solutions, arises from a legal challenge the company mounted on both the constitutional validity of the guarantee as well as its valuation for levy of the impost.
The recent spate of stay orders from different courts in favour of petitioner companies would not prevent demand notices to other companies, GST officials in Bengaluru said, declining to be identified.
The authorities, while acknowledging the recent stay order stopping the
