Indirect Tax & ​Foreign Trade Insights - Issue 15

Indirect Tax_Sharp & Stellar_Issue_15.pdf

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Highlights

• Punjab & Haryana HC stays circular on taxability of corporate guarantee between related persons

• Taxpayer liable to pay interest for erroneous refund of ITC: Madras HC

• Highest ever GST collection recorded in April 2024

• President of GST Appellate Tribunal appointed

• e-COO issued by the issuing Authority of Korea acceptable for claiming preferential benefits

• New security features added to the COO issued by UAE

• Export prohibition on onions made free

Insights

Generally, the Companies issue such guarantees to the lenders of the group companies. The company providing the guarantee may or may not charge any consideration against this act from their group companies. While under the Service Tax, consideration being the essential element, absent of which the ST was not levied for such guarantees whereas under the GST, Schedule I to the CGST Act 2017 prescribes activities that will remain taxable even if provided without consideration. Clause 2 of the Schedule I covers the activities within the related parties in the ordinary course of business. Hence, if the company does not charge consideration, even in that case the tax authorities demand GST against such acts.

Last year, CBIC had issued a circular vide Circular No. 204/16/2023-GST dated 27/10/2023 where it clarified that no GST would be levied on personal guarantees provided by directors as RBI regulations prohibit companies from paying any consideration to their directors in exchange for providing personal guarantees to banks for borrowing credit limits. Consequently, the open market value of such guarantees shall be treated as nil, thereby no tax is payable.

Further, the circular confirmed the levy of GST on corporate guarantees provided to holding or subsidiary companies, where the open market value of such supplies would be deemed to be 1% of the loan amount or the actual consideration received, whichever is higher.

The Punjab & Haryana High Court's stay on Circular No. 204/16/2023-GST offers a much-needed breathing space for the industry grappling with the complexities of GST regulations. The circular had introduced a contentious taxability framework for corporate guarantees between related parties, creating uncertainty and compliance burdens. The court has provided a respite, allowing stakeholders to reassess the implications and seek clarity on the taxation of such guarantees. As legal proceedings progress, the outcome will be closely watched, as it could significantly influence future policies and practices, potentially shaping the landscape of GST compliance for businesses.

Period Covered: Apr 29, 2024 to May 05, 2024