Deekshitha Sharmile

The Madras High Court Single Bench of Justice G R Swaminathan has set aside a GST demand raised on the premise that a corporate guarantee extended by the petitioner to its related entity amounted to a taxable supply valued at one per cent of the guarantee amount. Allowing the writ petition, the Court found that while the taxpayer had relied on two CBIC circulars to contend that the transaction value should be treated as nil, the tax department did not address those defences in the assessment order. The Court observed that an order becomes vulnerable when a noticee’s contentions are not considered, and on that ground quashed the impugned demand. The matter was remitted to the assessing authority to reconsider the reply and pass a fresh order on merits in accordance with law.

The petitioner furnished a corporate guarantee in favour of a related entity. The assessing authority treated the furnishing of such guarantee as a taxable supply under the Goods and Services Tax regime. The authority levied tax at one percent of the corporate guarantee amount, considering it as supply of service between related persons.

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The petitioner contended that no consideration was received for furnishing the corporate guarantee. In response to the show cause notice, the petitioner submitted a reply relying on Circular No.199/11/2023-GST dated 17 July 2023 and Circular No.210/4/2024-GST dated 26 June 2024. These circulars clarified valuation of supplies between related persons and the treatment of transactions where full input tax credit is available.

The petitioner argued that since the recipient was eligible for full input tax credit and no invoice was issued, the value of the transaction should be deemed as zero under Rule 28 of the CGST Rules, 2017. The assessing officer, however, did not consider the applicability of these circulars while passing the order. The dispute thus centered on whether the corporate guarantee furnished without consideration attracted GST and whether the clarifications issued by the Board applied to the petitioner’s case.

Justice G.R. Swaminathan recorded: “It is true that the respondent had issued show cause notice to the writ petitioner before passing the impugned order.” The Court noted: “The writ petitioner submitted their reply. In their reply, the petitioner placed reliance on 2 circulars i.e., Circular No.199/11/2023-GST dated 17.07.2023 and Circular No.210/4/2024-GST dated 26.06.2024.”

The Court referred to the statutory framework: “Rule 28 of CGST Rules, 2017 reads as follows: ‘28. Value of supply of goods or services or both between distinct or related persons, other than through an agent…’” It was further recorded: “Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related person [located in India], by way of providing corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered [per annum], or the actual consideration, whichever is higher.”

The Court noted the petitioner’s reliance on clarifications: “Circular No.199/11/2023-GST dated 17.07.2023 reads as follows: Clarification regarding taxability of services provided by an office of an organisation in one State to office of that organisation in another State, both being distinct persons. It was also recorded: “Circular No.210 dated 26.06.2024 reads as follows: Clarification on valuation of supply of import of services by a related person where recipient is eligible to full input tax credit.”

The Court observed: “The assessee / writ petitioner herein had contended that since the recipient is eligible for full ITC and the writ petitioner did not issue any invoice, and value of transaction has been taken as zero, the aforesaid circulars are applicable to the transactions in question.” Finally, the Court stated: “It is a well settled principle of administrative law that when a defense raised by the noticee is not considered in the final order, the order is vulnerable on that ground.”

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The Court directed: “On the ground of non-consideration of the contentions raised by the assessee, the impugned order is set aside. The matter is remitted to the respondent. The respondent is directed to consider all the contentions raised by the assessee in the reply and pass order afresh on merits and in accordance with law. I have not gone into the merits of the matter. This Writ Petition is allowed on these terms. No costs. Consequently, connected miscellaneous petitions are closed.”

Advocates Representing the Parties

For the Petitioners: Mr. M. Karthikeyan for Mr. S. Jai Kumar
For the Respondents: Mr. R. Suresh Kumar, Additional Government Pleader

Case Title: M/s. Amman Try Trading Company Private Limited vs. The State Tax Officer – V (RS)
Case Number: W.P(MD)No.20109 of 2025 & W.M.P(MD)Nos.15509, 15510 & 18212 of 2025
Bench: Justice G.R. Swaminathan