[Cites 30, Cited by 0]
Bombay High Court
M/S. D P Jain And Co. Infrastructure Pvt. ... vs Union Of India, Thr. The Secretary, ... on 6 May, 2026
1 WP.2087-2025.JUDGMENT.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
WRIT PETITION NO. 2087 OF 2025
M/s. D P Jain & Co. Infrastructure
Private Limited., Dharampeth U-6,
Himalaya Accord Apartments Opp.
Law College, Amravati Road, Nagpur-
440010 (M.S.), Thr. its General
Manager (Accounts) Mr. Sanjay Bole. PETITIONER
Versus
1. Union of India, Thr. the Secretary,
Ministry of Finance Department of
Revenue North Block New Delhi -
110001.
2. Senior Intelligence Officer/Assistant
Commissioner Directorate General of
GST Intelligence, Coimbatore Zonal
Unit 155-1, Laksmanan Street
Ukkadam, Coimbatore-641001.
3. Joint Director/Additional Director
Directorate General of GST
Intelligence, Coimbatore Zonal Unit
155-1, Laksmanan Street, Behind
Ukkadam Bus Stand, Ukkadam,
Coimbatore- 641001.
4. Additional/Joint Commissioner of
CGST & Central Excise Nagpur-I
Commissionerate GST Bhavan
Telangkhedi Road, Civil Lines
Nagpur-440001.
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2 WP.2087-2025.JUDGMENT.odt
5. Assistant Commissioner of State Tax
(Investigation) MUM-INV-D-013,
Investigation-A Cabin No.-7, 2nd Floor,
C-Wing Goods and Services Tax (GST)
Bhavan, Mazagon, Mumbai-400010.
6. State of Maharashtra, Thr. its
Additional Chief Secretary (Finance)
Secretaries Cabin, Main building,
Mantralaya, Madam Kama Road,
Hutatma Rajguru Chowk, Mumbai-
400032. RESPONDENTS
-----------------------------------------------
Mr. Bharat Raichandani, Advocate a/w Mr. R.K. Joshi, Advocate
for the Petitioner.
Mr. Kunal Nalamwar, Advocate for the Respondent Nos. 2 to 4.
Mr. A.J. Gohokar, AGP for the Respondent No. 5 & 6/State.
-----------------------------------------------
CORAM : URMILA JOSHI PHALKE AND
NIVEDITA P. MEHTA, JJ.
RESERVED ON : 24th APRIL, 2026.
PRONOUNCED ON : 06th MAY, 2026.
ORAL JUDGMENT :- (PER : URMILA JOSHI PHALKE, J.)
1. Heard.
3 WP.2087-2025.JUDGMENT.odt
2. Rule. Rule made returnable forthwith. Heard finally
by the consent of learned Counsel appearing for the respective
parties.
3. The Petitioner through this Petition challenging the
proceedings initiated by the impugned Circular
No.204/16/2023 dated 27.10.2023 and Circular
No.225/19/2024-GST dated 11.07.2024 issued by the
Respondent No.1/Ministry of Finance Department of Revenue
by which it is declared that Corporate Guarantee will be treated
as taxable supply of service and proceedings initiated by the
Respondent No.2 by issuing the impugned Summons dated
20.07.2023.
4. The Petitioner Company M/s D.P. Jain & Co.
infrastructure Pvt. Ltd., is engaged in the business of
Construction of National and State Highways in respect of
projects awarded by the National Highways Authorities and
State Corporations.
5. As per the contention of the Petitioner the State
Bank of India by its letter dated 10.09.2020, sanctioned a term
4 WP.2087-2025.JUDGMENT.odt
loan of Rs. 310.63 crores in favour of DPJ Pollachi HAM Project
Private Limited for construction of two to four lane of road from
Madathukulam to Pollachi in the State of Tamil Nadu under
NHAI HAM Model. As per Clause/Condition No. 33 of the said
sanctioned letter, there was a pre-condition to furnish corporate
guarantee of the Petitioner to meet any cost overturn or
shortfall during the entire tenure of the loan. A Security Trustee
Agreement dated 03.11.2020 was entered into between DPJ
Pollachi HAM Project Private Limited and State Bank of India
and SBICAP Trustee Company Ltd., was appointed as security
Trustee on behalf of and for the benefit of the Lender Bank.
Accordingly, a deed of Corporate Guarantee was executed
between the Petitioner and State Bank of India and SBICAP
Trustee Company Ltd., on 03.11.2020, as the loan was
sanctioned on the condition that it will be backed by an
irrevocable and unconditional corporate guarantee in favour of
Security Trustee acting in benefit of Lender Bank. Clause 13 of
said deed of Corporate Guarantee by which the Petitioner has
declared that corporate guarantor i.e. the Petitioner has not
received and shall not receive any security, fee, commission, or
any other consideration from the borrower.
5 WP.2087-2025.JUDGMENT.odt
6. Similarly, the Bank of Maharashtra by letter dated
29.07.2022 sanctioned a credit facility by way of term loan of
Rs. 507.36 crores, in favour of D P Jain Bangalore Chennai
Expressways Private Limited for construction of four lane of
road from Arrakonam to Kanchipuram in the State of Tamil
Nadu under NHAI HAM Model. As per Clause/Condition No. 43
of said sanctioned letter, a Catalyst Trusteeship Ltd., was
appointed as security Trustee on behalf of and for the benefit of
the Lender Bank and to hold the security to be created pursuant
to the transaction document in accordance with the terms of
Sanction Letter, including the Corporate Guarantee by the
Petitioner. As per Clause 9 of said deed of Corporate Guarantee,
the Petitioner declared that it has not received and shall not
receive any security, fee, commission, or any other consideration
from the borrower for giving this Guarantee. The said Corporate
Guarantee was executed on 08.08.2022.
7. The Bank of Maharashtra by letter dated 24.09.2021
sanctioned a credit facility by way of term loan of Rs. 1196
crores, in favour of D P Jain TOT Toll Roads Private Limited for
Tolling, Operation, Maintenance and Transfer of Palanpur-
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Radhanpur-Samkhiyali section of NH-27 in the State of Gujarat
under TOT Model. As per Clause (g) of said sanctioned letter,
pre-condition was to execute a corporate guarantee of
Petitioner. A Security Trustee Agreement dated 28.12.2021 was
also executed and Catalyst Trusteeship Ltd. was appointed as
security Trustee on behalf of and for the benefit of the Lender
Bank. The Petitioner has executed a Corporate Guarantee dated
28.12.2021 and in view of Clause 9 declared that that corporate
guarantor i.e. the Petitioner has not received and shall not
receive any security, fee, commission, or any other consideration
from the borrower for giving the Guarantee.
8. As per the contention of the Petitioner, the Assistant
Commissioner of State Tax/Respondent No. 5 carried out the
detailed investigation against the Petitioner Company for the
year 2017-18 to 2022-23. As per the requirement the Petitioner
has supplied all the documents to the Respondent No. 5
including financial statement, concession agreements and GST
annual return. The three Corporate Guarantees were shown in
book of accounts mentioning the expenses for corporate
guarantee deed. The Respondent No. 5 though verified books of
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accounts, balance sheet, and all documents, no action was
raised against the Petitioner as to the said Corporate
Guarantees.
9. Subsequently, the Respondent No.2 has initiated the
investigation against the Petitioner by issuing a summons dated
20.07.2023 alleging non-payment of GST without stating the
nature and purpose of investigation and the period of
investigation and under which provisions of law such
investigation was initiated. The said summons was vague. The
Petitioner by its letter dated 25.09.2023, informed Respondent
No. 2 that Assistant Commissioner of State Tax/Respondent
No. 5 had already carried out the investigation against the
Petitioner Company. However, the Deputy Director, DGGI,
Coimbatore Zonal Unit, an officer of Respondent No. 1, wrote a
letter dated 05.10.2023 to the Assistant Commissioner of the
State Tax stating that the Petitioner had submitted a letter dated
25.09.2023 with a copy of the indent dated 03.07.2023 issued
by the Assistant Commissioner State Tax and stated that the
subject matter of investigation done by the Respondent No. 2 is
not covered by the State Tax investigation.
8 WP.2087-2025.JUDGMENT.odt
10. Subsequently, the Respondent No. 1 issued a
Notification No. 52/2023-Central Tax, dated 26.10.2023 by
which Rule 28 of the Central Goods and Services Tax Rule, 2017
was amended and Sub-Rule (2) was inserted. The said
impugned Sub-Rule (2) in Rule 28 amended by Notification
No. 12/2024-Central Tax, dated 10.07.2024.
11. The further Circular-No-204/16/2023, dated
27.10.2023 was issued on the subject of taxability of corporate
guarantee in GST and clarified that activity of providing
corporate guarantee will be treated as a taxable supply of
service. It is further contended that, the activity of providing
corporate guarantee by a person on behalf of another related
person or by the holding Company for sanction of credit
facilities to its subsidiary Company, to the bank/financial
institutions, even when made without any consideration will be
treated as a taxable supply of service and thereby initiated
proceeding against the present Petitioner holding liable to pay
tax for the said corporate guarantee.
9 WP.2087-2025.JUDGMENT.odt
12. It is the contention of the Petitioner that, the
Respondent No.1, without examining any legal provisions of
Central Goods and Services Tax Act, 2017, (for short CGST Act,
2017) and at its own assumption by the impugned Circulars
declared that providing "Corporate Guarantee" is "Taxable
Supply of Service" under CGST Act, 2017. The Respondent No.1
in the impugned Circulars had clarified that the activity of
providing corporate guarantee will be treated as taxable supply
of service. The Respondent No.3 on the basis of said impugned
Circulars has demanded huge amount of GST by issuing
impugned show cause notice by treating the same as service.
The Respondents, have completely ignored the provisions of
law, that goods and services are two different terms and
expression defined under the law and a transaction which is
actionable claim and specified covered within the definition of
'goods' under the CGST Act, 2017/MGST Act, 2017, cannot be
treated as 'service' either by issuing Circular. No notification has
been issued to specify that transaction of actionable claim will
be treated as service and not as goods, whereas Schedule-III
specifically excluded transaction is actionable claim [other than
specified actionable claim as defined in Section 2(102A)].
10 WP.2087-2025.JUDGMENT.odt
Therefore, the Respondents have acted illegally and contrary to
the provisions of the Act, and therefore, these notifications are
not valid and contrary to the law, and therefore, be declared as
ultravires and be quashed and set aside.
13. Petitioner also seeks quashing and setting aside the
impugned Sub-Rule (2) of Rule 28 of the Central Goods and
Services Tax Rule, 2017 as inserted by the Notification No.
52/2023-Central Tax, dated 26.10.2023 and further amended
by Notification No. 12/2024 Central Tax, dated 10.07.2024,
issued by Respondent No.1 as well as corresponding Sub-Rule
(2) of Rule 28 of the Maharashtra Goods and Services Tax
Rules, 2017 (for short MGST Rules, 2017) made by the
Respondent No.6 as the same are ultravires to the provisions of
CGST Act, 2017 and Maharashtra Goods and Services Tax Act,
2017 (for short MGST Act, 2017).
14. The Petitioner also seeks quashing and setting aside
of the impugned show cause notice issued to it be bad in law,
without jurisdiction and ultravires to the provisions of CGST
Act, 2017 and MGST Act, 2017.
11 WP.2087-2025.JUDGMENT.odt
15. This Petition is strongly opposed by the Respondent
Nos. 2, 3 and 4 by filing reply on the ground that indent letter
dated 03.07.2023 issued by the Respondent No.5 to the
Petitioner did not cover the 'corporate guarantee issue'.
Accordingly, a letter dated 05.10.2023 was issued to the
Assistant Commissioner of State Tax, Investigation-A, Mumbai
informing, that since the impugned subject matter was not
being covered in their investigation, the Respondent No.2 is
proceeding with the investigation against the Petitioner only in
respect of the non-payment of GST on the Corporate Guarantees
issued. It is the further contention of the Respondent Nos. 2 to 4
that, in view of clause (b) of Sub-Section (2) of Section 6 of the
CGST/MGST Act, 2017 where a proper officer under the State
GST has initiated any proceedings on a subject matter, no
proceedings shall be initiated by the proper officer under this
Act, only on the same subject matter. Since the impugned
subject of payment of GST on Corporate Guarantees dealt by
this office was different from the investigation initiated by the
Respondent No.5, and therefore, the action initiated is legal and
proper one.
12 WP.2087-2025.JUDGMENT.odt
16. It is the further stand of the Respondent Nos. 2 to 4
that, the Petitioner has challenged Notification No. 52/2023-
Central Tax dated 26.10.2023 which inserted impugned Rule
28(2) of the CGST Rules, 2017 and CBIC clarification Circular
No. 204/16/2023 dated 27.10.2023. It is contended that, in
view of Rule 28(1) of the CGST Rules, 2017, wherein when
there is no commission or consideration, the transaction value
shall be treated as zero and by the said Notification dated
26.10.2023, i.e. before insertion of Sub Rule 2 of Rule 28 of
CGST Rules 2017, valuation of the supply is to be done as per
the valuation rules existing before 26.10.2023. As Corporate
Guarantee is not a commodity or service which is available or
supplied in open market, hence, open market value of such
supplies as prescribed in clause 'a' of Rule 28 and open market
value of supply of goods or services of like kind and quality as
prescribed in clause 'b' of Rule 28 cannot be determined and
therefore, valuation cannot be done as per clause 'a' or 'b' of
Rule 28. Accordingly, it is to be done by clause 'c' of Rule 28 of
CGST Rules 2017, and therefore, the action of the present
Respondent No.2 initiating the proceeding for recovery of the
13 WP.2087-2025.JUDGMENT.odt
GST on corporate guarantee is proper and legal one and Writ
Petition deserves to be dismissed.
17. The Respondent Nos. 5 and 6 also clarified in their
reply that, the investigation visit and DRC proceedings which
was initiated by the Respondent No.5 did not cover the
corporate guarantee issue. Therefore, it is crystal clear that
subject of corporate guarantee issue is different and not covered
in the investigation by the Respondent No.2, and therefore, the
Petition deserves to be dismissed.
18. Heard Mr. Raichandani, learned Counsel for the
Petitioner, who submitted that these corporate guarantees are
executed by the Petitioner for the security of loans which are
advanced by the State Bank of India and Bank of Maharashtra
in favour of the banks. It is submitted that, the Respondent No.1
issued Notification No. 52/2023-Central Tax, dated 26.10.2023
which inserted impugned Sub-Rule (2) in Rule 28 of the Central
Goods and Services Tax Rule, 2017 (for short CGST Rules,
2017) and the same was amended by the Notification No.
12/2024 Central Tax dated 10.07.2024. The Respondent No. 1,
14 WP.2087-2025.JUDGMENT.odt
through its Board, issued Circular-No-204/16/2023 dated
27.10.2023 on the subject taxability of corporate guarantee in
GST and stated that activity of providing corporate guarantee
will be treated as a taxable supply of service. It is further stated
that, the activity of providing corporate guarantee by a person
on behalf of another related person or by the holding Company
for sanction of credit facilities to its subsidiary Company, to the
bank/financial institutions, even when made without any
consideration will be treated as a taxable supply of service. It is
further stated in the Notification that, where the corporate
guarantee is provided by a holding Company, for its subsidiary
Company, those two entities also fall under the category of
related persons and the value will be determined as per Rule 28
of the CGST Rules, 2017. The said Circular further states that,
considering different practices being followed by the field
formations and taxpayers in determining such taxable value, in
order to provide uniformity in practices and ease of
implementation, Sub-Rule (2) has been inserted in Rule 28 of
CGST Rules vide Notification No. 52/2023 dated 26.10.2023.
He submitted that, it is a settled principle of law that, a tax
liability cannot be created by a circular, where in this circular it
15 WP.2087-2025.JUDGMENT.odt
is mentioned that providing corporate guarantee will be treated
as a taxable supply of service, whereas, Respondent No. 1 has
no power either to issue such circular under Section 168 of the
CGST Act, 2017 and nor has power to treat a corporate
guarantee "taxable supply of service". Any activity is taxable or
not has to be determined by due process of adjudication and if
is prejudged by Respondent No. 1 by addressing to all the
officers, then of course, the entire process of adjudication
become fruitless.
19. The Respondent No. 5 has already examined the
records for the covering from year 2017-18 to 2022-23, for four
days and entire assessment made and demand determined were
paid and there cannot be two assessments for the same period
and entire exercise done by Respondent No. 2 is illegal and
without jurisdiction.
20. It is further submitted by the learned Counsel for
the Petitioner that, Respondent No. 1, without examining any
legal provisions of CGST Act and at its own assumption by the
impugned Circulars declared that providing "corporate
16 WP.2087-2025.JUDGMENT.odt
guarantee" is a "taxable supply of service" under the CGST Act,
2017, whereas as per Section 9 of the CGST Act, GST is
leviable on supplies of "goods" or "services" or both.
Whereas, "goods" has been defined under Section 2(52) of
the Act, which includes "actionable claim". However, as per
Schedule-III of the Act, "actionable claims" (other than
specified actionable claim as defined in Section 2(102A) like
gambling) are the activity or transactions which shall be
treated neither as a supply or goods nor a supply of service.
Taxable supply is defined under Section 2(108) of the CGST
Act, 2017 means a supply of goods or services or both which
is leviable to tax under GCST Act. Firstly, providing Corporate
Guarantee is not a taxable supply under CGST Act/MGST
Act, 2017 and secondly Corporate Guarantee is only could
fall within the realm of 'actionable claim', which is neither a
supply of goods and nor supply of service, hence not taxable.
21. He further submitted that, the said Circular was
issued on 26.10.2023 and Rule 28 by inserting Sub-Rule 2 by
Notification No.12/2024 dated 10.07.2024 and amended
retrospectively with effect from 26.10.2023. It is clarified in
17 WP.2087-2025.JUDGMENT.odt
the Notification dated 11.07.2024 that in respect of supply of
services of providing corporate guarantee between related
persons, in respect of corporate guarantee issued or renewed
before 26.10.2023, the valuation of the said supply is to be
done in accordance with Rule 28, as it existed during that
time. However, if the corporate guarantee is issued or
renewed on or after 26.10.2023, then the valuation of the
said supply will be required to be done as per Rule 28(2) of
CGST Rules, 2017. All the corporate guarantees executed by
the Petitioner are prior to the said amendment as well as the
Notification dated 26.10.2023. For all above these grounds
the proceedings initiated against the present Petitioner is
illegal and deserves to be quashed and set aside.
22. It is the contention of the Petitioner that, in view
of specific clause in the corporate guarantee agreement there
is no consideration paid or received by the Petitioner, and
therefore, the Petitioner is not liable to pay the GST. The
Petitioner further contended that, the above Circular has
been challenged before the various High Courts and the
various High Courts have taken the cognizance of the issue
18 WP.2087-2025.JUDGMENT.odt
involved and stayed the further proceedings, and therefore,
the Petitioner is not liable to pay the said GST on corporate
guarantees.
23. Learned Counsel for the Petitioner has placed
reliance on Scholoss HMA Pvt. Ltd. Vs. Union of India,
(2025) 26 Centax 382 (Bom.); JSW Steel Ltd. Vs. Directorate
General of GST Intelligence, (2024) 24 Centax 12 (Del.) ; R/
Special Civil Application No. 12179/2024 Torrent
Investment Pvt. Ltd. Vs. Union of India & Ors., decided on
20.08.2024 & Vedanta Ltd. Vs. Union of India, (2025) 26
Centax 244 (Bom.).
24. As per the contentions of the Respondents, the
provisions of CSST Act, 2017 and Rules made thereunder and
the Notification issued under the CGST Act, 2017 and the
MGST Act, 2017 and Rules made thereunder and the
Notification issued under the MGST Act, 2017 are the same
except for certain provisions. Therefore, unless it is
specifically mentioned to such dissimilar provision or
reference to the CGST Act, 2017, Rules made thereunder or
19 WP.2087-2025.JUDGMENT.odt
Notification issued under the CGST Act, 2017 would also be a
reference to the same provisions under the MGST Act, 2017
and Rules made thereunder and Notification issued under
MGST Act, 2017 and vice versa.
25. It is the contention of the Respondents that, the
Petitioner Company is liable to pay GST on corporate
guarantee in view of the amendment in Rule 28(2) of the
CGST Act. It is further contention of the Respondents that, in
view of Circulars issued on 11.07.2024 it has been clarified
that the valuation may be done on a proportionate basis.
Three corporate guarantees were provided by the Petitioner
which commenced on 03.11.2020, 28.12.2021 and
08.08.2022, and therefore, the Petitioner is liable to pay the
GST in view of Section 28(1)(c).
26. Before entering into the merits of the issue
involved, it is necessary to refer some definitions. Here in the
present Writ Petition, the entire issue revolves around
initiation of proceeding of non-payment of GST on corporate
guarantees.
20 WP.2087-2025.JUDGMENT.odt
27. The definition of "consideration" is given under
Section 2(31) of the CGST Act, 2017, which reads as under:
"2(31). "consideration" in relation to the supply of
goods or services or both includes-
(a) any payment made or to be made, whether in money
or otherwise, in respect of, in response to, or for the
inducement of, the supply of goods or services or both,
whether by the recipient or by any other person but shall
not include any subsidy given by the Central Government
or a State Government;
(b) the monetary value of any act or forbearance, in
respect of, in response to, or for the inducement of, the
supply of goods or services or both, whether by the
recipient or by any other person but shall not include any
subsidy given by the Central Government or a State
Government:
Provided that a deposit given in respect of the supply of
goods or services or both shall not be considered as
payment made for such supply unless the supplier applies
such deposit as consideration for the said supply."
28. The phrase "services" for the purpose of CGST Act,
is defined in Section 2(102) of the CGST Act, which reads as
under:
"2(102). "services" means anything other than goods,
money and securities but includes activities relating to the
use of money or its conversion by cash or by any other
mode, from one form, currency or denomination, to
another form, currency or denomination for which a
separate consideration is charged."
Explanation : For the removal of doubts, it is hereby
clarified that the expression "services" includes facilitating
or arranging transactions in securities:
21 WP.2087-2025.JUDGMENT.odt
29. The definition of "related person" for the purpose of
this Act which is referred in Section 15 of the CGST Act, 2017,
which is reproduced below:
"Explanation : For the purposes of this Act,-
(a) persons shall be deemed to be "related persons" if-
(i) such persons are officers or directors of one
another's businesses;
(ii) such persons are legally recognised partners in
business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or
holds twenty-five per cent. or more of the outstanding
voting stock or shares of both of them;
(v) one of them directly or indirectly controls the
other;
(vi) both of them are directly or indirectly controlled
by a third person;
(vii) together they directly or indirectly control a third
person; or
(viii) they are members of the same family;
(b) the term "person" also includes legal persons;
(c) persons who are associated in the business of one
another in that one is the sole agent or sole distributor or
sole concessionaire, howsoever described, of the other,
shall be deemed to be related."
30. The term "supply" is defined under Section 7 of
the CGST Act, 2017 which includes all forms of supply such
22 WP.2087-2025.JUDGMENT.odt
as sale, transfer, barter, exchange, licence, rental, lease or
disposal of goods or services or both, made or agreed to be
made in the course or furtherance of business and for a
consideration and includes activities mentioned in Schedule I
to the Act which are made or agreed to be made without a
consideration.
31. The term "Guarantee" has been defined in Black's
law Dictionary as "The assurance that a contract or legal act
will be duly carried out"; "To assume a suretyship obligation;
to agree to answer for a debt or default".
32. In simple language, a guarantee means the
promise for doing of something or a promise to make
payment of certain debt or performance of certain duty of
another person's contractual obligation if that other person
fails to make good the performance or pay his debt or fulfil
his obligation, as the case may be.
33. The term "guarantee" or to be precise "contract of
guarantee" has been defined in Section 126 of the Indian
Contract Act, 1872, which provides that a contract of
23 WP.2087-2025.JUDGMENT.odt
guarantee is a contract to perform the promise, or discharge
the liability, of a third party in case of his default. On a joint
reading of Section 126 of the Indian Contract Act, 1872 and
Section 2(11) of The Companies Act, 2013, a Corporate
Guarantee can be inferred as an affirmation usually made by
a larger company, on behalf of another business entity which
usually would be a smaller company. It is a guarantee to a
lender that a loan will be repaid, guaranteed by a company
other than the one who took the loan.
34. A corporate guarantee is an agreement between a
borrower, lender and guarantor, whereby the guarantor takes
on the responsibilities of debt repayment, if the borrower
defaults. Corporate guarantees are often provided by holding
or group companies without any charges or consideration.
The primary objective of these guarantees is to facilitate the
smooth operations of subsidiary or group companies.
35. The corporate guarantee by its very definition is a
financial guarantee provided by one Company i.e. the
24 WP.2087-2025.JUDGMENT.odt
Guarantor on behalf of another entity i.e. the borrower to
assure repayment of a loan on fulfillment of an obligation.
36. In the common parlance 'corporate guarantee' is a
guarantee of one corporate unit to keep itself responsible for
the financial obligations or any other contractual obligations
of the principal debtor to the creditor on behalf of principal
debtor while 'bank guarantee' is a guarantee given by the
bank on behalf of the applicant to cover its payment
obligations to third party. Corporate guarantees are issued
without any security, whereas bank guarantee mostly require
security against offer of such guarantee and financial
instrument is issued by the bank or financial institutions
towards the fulfillment of the party's financial obligations to a
beneficiary.
37. The principle of valuation in case of GST is that the
value of a supply of goods or services or both shall be the
transaction value, which is the price actually paid or payable for
the said supply of goods or services or both where the supplier
and the recipient of the supply are not related and the price is
25 WP.2087-2025.JUDGMENT.odt
the sole consideration for the supply. When such supply is
between related persons, its value will be determined by the
valuation rules as prescribed.
38. Thus, the term "services" means anything other than
goods, money and securities but includes activities relating to
the use of money or its conversion by cash or by any other
mode, from one form, currency or denomination to another
form, currency or denomination for which a separate
consideration is charged. By providing guarantee against any
loan /credit facility, the guarantor basically assists the principal
debtor in availing such facility, which has an element of service.
39. Reverting back to the facts of the present case, the
Petitioner had challenged the initiation of the proceedings by
the Respondent Nos. 1 and 2 against the Petitioner for non-
payment of the GST on corporate guarantees. Undisputedly, the
Petitioner has executed the corporate guarantee against the
sanctioned term loan of Rs. 310.63 crores vide sanction letter
dated 10.09.2020 by State Bank of India in favour of DPJ
Pollachi HAM Project Private Limited for construction of two to
26 WP.2087-2025.JUDGMENT.odt
four lane of road from Madathukulam to Pollachi in the State of
Tamil Nadu. Undisputedly, clause 13 of the deed of guarantee
dated 03.11.2020 specifically provides that corporate guarantor
(Petitioner) has not received and shall not receive any security,
fee, commission, or any other consideration from the borrower
for giving this deed. Similarly, the Petitioner has also executed a
corporate guarantee in favour of the Bank of Maharashtra for
the loan sanctioned in favour of D P Jain Bangalore Chennai
Expressways Private Limited dated 08.08.2022, wherein also
vide Clause 9 the Petitioner has declared that it has not received
and shall not receive any security, fee, commission, or any other
consideration from the borrower for giving this guarantee. The
Petitioner has also executed a corporate guarantee against the
sanctioned credit facilities by way of term loan of Rs. 1196
crores by the Bank of Maharashtra by sanctioned letter dated
24.09.2021 and in the said corporate guarantee also the similar
clause 9 by which it was declared that the Petitioner has not
received and shall not receive any security, fee, commission, or
any other consideration from the borrower for giving this
guarantee.
27 WP.2087-2025.JUDGMENT.odt
40. It is canvassed by the learned Counsel for the
Petitioner that, regarding the said activity of the Petitioner the
Respondent No. 5 has carried out detailed investigation against
the Petitioner Company covering the period of investigation
from 2017-2018 to 2022-2023 and the Petitioner has also
submitted the detailed reply and thereby the Respondent No.2
has submitted a copy of indent dated 03.07.2023. All records
were already submitted before the Respondent No.5. All three
corporate guarantees, the Petitioner incurred legal charges
which were duly shown in the accounts ledger duly mentioning
the expenses for corporate guarantee deed as such respondent
No.5 even though verified books of accounts and all other
documents has not levied any GST on the corporate guarantee
provided by the Petitioner. It is further submitted that, despite
the investigation was carried out by the Respondent No.5, the
Respondent No.2 initiated the investigation against the
Petitioner by issuing summons dated 20.07.2023 alleging non-
payment of GST without stating the nature and purpose of
investigation. Despite the Petitioner has intimated about the
investigation carried out by the Respondent No.5 this
proceeding was initiated in view of the amendment by
28 WP.2087-2025.JUDGMENT.odt
Notifications dated 26.10.2023 and 10.07.2024. The
Respondent No.1 through its Board issued Circular No.
204/16/2023 dated 27.10.2023 including the corporate
guarantee in GST and stated that activity of providing corporate
guarantee will be treated as taxable supply of service. It is
specifically stated that, activity of proceeding corporate
guarantee by a person on behalf of another related person or by
holding of company for the sanction of credit facilities to its
subsidiary Company, to the bank/financial institutions, even
when made without any consideration will be treated as a
taxable supply of service.
41. It is submitted that, the Respondent No.1 without
examining any legal provisions of the CGST Act, 2017 and at its
own assumption by the impugned circulars declared that
providing corporate guarantee is a taxable supply of service
under CGST Act, 2017, whereas as per Section 9 of the CGST
Act, GST is leviable on supplies of "goods" or "services" or
both. Whereas, "goods" has been defined under Section
2(52) of the Act, which includes "actionable claim". But as
per para 6 of Schedule-III of the Act, "actionable claims"
29 WP.2087-2025.JUDGMENT.odt
(other than specified actionable claim as defined in Section
2(102A) like gambling) are the activity or transactions which
shall be treated neither as a supply or goods nor a supply of
service. The Taxable supply is defined under Section 2(108)
of the Act which means a supply of goods or services or both
which is leviable to tax under GCST Act. Corporate
Guarantee is not a taxable supply under CGST Act/MGST
Act, 2017 and secondly Corporate Guarantee is only could
fall within the realm of 'actionable claim', which is neither a
supply of goods and nor supply of service, hence not taxable.
42. As per Section 2(1) of the Act, actionable claim
has the same meaning as assigned to it in Section 3 of the
Transfer of Property Act, 1882 under claim to be debt,
whether such debt be existent, accruing, conditional or
contingent is an actionable claim. An actionable claim is of
course as its nomenclature suggests, only a claim and further
held that such claim, may be existent, accruing, conditional
or contingent.
30 WP.2087-2025.JUDGMENT.odt
43. Thus, it is submitted that, the activity of providing
corporate guarantee is not covered under the supply of goods
and by this circular the Respondents amended the Rule 28
against the legal provisions. Therefore, the said Rule requires
to be declared as ultravires.
44. He also invited our attention towards the
Notification dated 27.10.2023 and submitted that it is
clarified that Rule 28 of Central Goods and Services Tax
Rules, 2017 prescribes the method for determining the value
of the supply of goods or services or both between related
parties, other than where the supply is made through an
agent. In terms of Rule 28 of CGST Rules, 2017 the taxable
value of such supply of service shall be the open market value
of such supply.
45. He submitted that by notification dated
11.07.2024 it was clarified that, Sub-Rule (2) of Rule 28 of
CGST Rules, 2017 has been amended retrospectively with
effect from 26.10.2023 vide Notification No. 12/2024 dated
10.07.2024 and it is further clarified that, however if the
31 WP.2087-2025.JUDGMENT.odt
corporate guarantee is issued or renewed on or after
26.10.2023, then the valuation of the said supply will be
required to be done as per Rule 28(2) of CGST Rules,2017.
He submitted that, the said Notification specifically states
that, in respect of supply of services of providing corporate
guarantee between related persons, in respect of corporate
guarantee issued or renewed before 26.10.2023, the
valuation of the said supply is to be done in accordance with
Rule 28, as it existed during that time.
46. He submitted that, Rule 28 of CGST Rules, 2017
deals with value of supply of goods or services or both
between distinct or related persons, other than through an
agent. Sub-Rule 1(c) specifically states that, if the value is not
determinable under clause (a) or (b), be the value as
determined by the application of Rule 30 or Rule 31, in that
order: Provided that where the goods are intended for further
supply as such by the recipient, the value shall, at the option
of the supplier, be an amount equivalent to ninety percent of
the price charged for the supply of goods of like kind and
quality by the recipient to his customer not being a related
32 WP.2087-2025.JUDGMENT.odt
person. It is submitted that, the execution of the corporate
guarantee is neither supply nor a service, and therefore, GST
is not leviable against the said corporate guarantee.
47. Per contra, it is the contention of the Respondent
Nos. 2 to 4 that, Rule 28(2) of the, CGST Rules, 2017 has
been inserted vide Notification No. 52/2023-Central Tax dated
26.10.2023 and that they have not issued any Corporate
Guarantee post this date, owing to which no case of non-
payment of GST exists against them and that prior to
26.10.2023, valuation is to be done in terms of Rule 28(1) of
the CGST Rules, 2017, wherein there is no commission or
consideration, the transaction value shall be treated as zero. In
the instant case, since all the corporate guarantees are provided
by the taxpayer before 26.10.2023, i.e. before insertion of Sub
Rule 2 of Rule 28 of CGST Rules 2017, valuation of the supply is
to be done as per the valuation Rules existing before
26.10.2023.
48. It is further submitted that, as Corporate Guarantee
is not a commodity or service which is available or supplied in
33 WP.2087-2025.JUDGMENT.odt
open market, hence open market value of such supplies as
prescribed in clause 'a' of Rule 28 and open market value of
supply of goods or services of like kind and quality as prescribed
in clause 'b' of Rule 28 cannot be determined. Thus, in light of
the above, valuation cannot be done as per clause 'a' or 'b' of
Rule 28. Therefore, the valuation of supply of corporate
guarantee services is to be done by the application of Rule 30 or
Rule 31, in that order, as prescribed in clause 'c' of Rule 28 of
CGST Rules, 2017. Since cost of supply of corporate guarantee
services cannot be determined; valuation is to be done as
prescribed in clause 'c' of Rule 28 of CGST Rules 2017.
Therefore, the valuation of 'corporate guarantee' prescribed
and in view of Rule 31 of CGST Rules, 2017, valuation of supply
for computing the tax liability is 1% per annum on the amount
guaranteed in the impugned show cause notice, and therefore,
the Petitioner is liable to pay the GST over that corporate
guarantee.
49. Rule 28 of the CGST Rules, 2017, reads as under:
"28. Value of supply of goods or services or both between
distinct or related persons, other than through an agent
34 WP.2087-2025.JUDGMENT.odt
(1) The value of the supply of goods or services or both
between distinct persons as specified in sub-section (4) and
(5) of section 25 or where the supplier and recipient are
related, other than where the supply is made through an
agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the
value of supply of goods or services of like kind and
quality;
(c) if the value is not determinable under clause (a)
or (b), be the value as determined by the application
of rule 30 or rule 31, in that order:
Provided that where the goods are intended for further
supply as such by the recipient, the value shall, at the option
of the supplier, be an amount equivalent to ninety percent of
the price charged for the supply of goods of like kind and
quality by the recipient to his customer not being a related
person:
Provided further that where the recipient is eligible for full
input tax credit, the value declared in the invoice shall be
deemed to be the open market value of the goods or services.
(2) 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:
Provided that where the recipient is eligible for full input tax
credit, the value declared in the invoice shall be deemed to
be the value of said supply of services."
50. Circular No. 119/11/2023-GST dated
17.07.2023 reads as follows:
35 WP.2087-2025.JUDGMENT.odt
36 WP.2087-2025.JUDGMENT.odt
37 WP.2087-2025.JUDGMENT.odt
50(i). Circular No. 210/4/2024-GST dated
26.06.2024 reads as follows:
38 WP.2087-2025.JUDGMENT.odt
51. The issue which comes up for resolution is
whether executing a corporate guarantee would be taxable.
Rule 28(1)(c) states that, if the value is not determinable
under clause (a) or (b), be the value as determined by the
application of Rule 30 or Rule 31, in that order. The proviso
shows that, where the goods are intended for further supply
as such by the recipient, the value shall, at the option of the
supplier, be an amount equivalent to ninety percent of the
price charged for the supply of goods of like kind and quality
by the recipient to his customer not being a related person.
39 WP.2087-2025.JUDGMENT.odt
52. From the facts on record, it is evident that, the
Petitioner has executed a corporate guarantee which is a
guarantee given by the corporate to cover their own exposure
or exposure of some other related entity to their Bank. Bank
guarantees are issued by Bank on a regular basis as a part of
their business of Banking. It is nobody's case that Petitioner is
doing the business of providing corporate guarantee on a
regular basis. The corporate guarantee that was entered into
by Petitioner is only for the limited purpose of securing the
loans to its subsidiaries. Corporate guarantees are issued in
order to safeguard the financial health of their associate
enterprises and to provide it support. For banks, providing
bank guarantee is part of their regular course of business and
they charge rate on the higher side. Further, these are fool
proof instruments of security of the customer and failure to
honour the guarantee is treated as a deficiency of services of
the bank under banking laws. Corporate guarantee is actually
an in-house guarantee and is not issued to customers
generally.
40 WP.2087-2025.JUDGMENT.odt
53. While considering whether the corporate
guarantee is taxable one has to look the issue in view of
Section 15 of the CGST Act, 2017.
54. Section 15 deals with value of taxable supply,
which reads as under:
"15.Value of taxable supply.
(1) The value of a supply of goods or services or both shall be
the transaction value, which is the price actually paid or
payable for the said supply of goods or services or both where
the supplier and the recipient of the supply are not related
and the price is the sole consideration for the supply.
(2) The value of supply shall include-
(a) any taxes, duties, cesses, fees and charges levied under
any law for the time being in force other than this Act, the
State Goods and Services Tax Act, the Union Territory Goods
and Services Tax Act and the Goods and Services Tax
(Compensation to States) Act, if charged separately by the
supplier;
(b) any amount that the supplier is liable to pay in relation to
such supply but which has been incurred by the recipient of
the supply and not included in the price actually paid or
payable for the goods or services or both;
(c) incidental expenses, including commission and packing,
charged by the supplier to the recipient of a supply and any
amount charged for anything done by the supplier in respect
of the supply of goods or services or both at the time of, or
before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any
consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies
provided by the Central Government and the State
Governments.
41 WP.2087-2025.JUDGMENT.odt
Explanation : For the purposes of this sub-section, the
amount of subsidy shall be included in the value of supply of
the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount
which is given-
(a) before or at the time of the supply if such discount has
been duly recorded in the invoice issued in respect of such
supply; and
(b) after the supply has been effected, if-
(i) such discount is established in terms of an agreement
entered into at or before the time of such supply and
specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the
basis of document issued by the supplier has been reversed
by the recipient of the supply.
(4) Where the value of the supply of goods or services or
both cannot be determined under sub-section (1), the same
shall be determined in such manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or
sub-section (4), the value of such supplies as may be notified
by the Government on the recommendations of the Council
shall be determined in such manner as may be prescribed.
"Explanation : For the purposes of this Act,-
(a) persons shall be deemed to be "related persons" if-
(i) such persons are officers or directors of one
another's businesses;
(ii) such persons are legally recognised partners in
business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or
holds twenty-five per cent. or more of the outstanding
voting stock or shares of both of them;
(v) one of them directly or indirectly controls the
other;
42 WP.2087-2025.JUDGMENT.odt
(vi) both of them are directly or indirectly controlled
by a third person;
(vii) together they directly or indirectly control a third
person; or
(viii) they are members of the same family;
(b) the term "person" also includes legal persons;
(c) persons who are associated in the business of one
another in that one is the sole agent or sole distributor or
sole concessionaire, howsoever described, of the other,
shall be deemed to be related."
55. For the purposes of this Section the related person
is defined in the explanation. This Section provides for value
of taxable supply. The value of a supply of goods or services
shall be the transaction value, which is the price actually paid
or payable for the said supply, where the supplier and the
recipient of the supply are not related and the price is the
sole consideration of supply. This Section enumerates the
items which are to be included in the value.
56. The imposition of goods and services tax GST on
corporate guarantee has been challenged before this Court on
the premise that issuance of such guarantee to an associate
company is an in-house guarantee and does not qualify as a
supply of services. It is submitted that, the corporate
guarantee is in the nature of contingent contract which
43 WP.2087-2025.JUDGMENT.odt
becomes enforceable only at the instance of the
bank/financial institution in the event of a default.
What is executed by the Petitioner was a
corporate guarantee in favour of banks i.e. State Bank of
India and Bank of Maharashtra against the loan advanced in
favour of borrowers namely DPJ Pollachi HAM Project Private
Limited, D P Jain Bangalore Chennai Expressways Private
Limited, D P Jain TOT Toll Roads Private Limited. The
Respondents have taken a view that valuation of supply of
corporate guarantee services is to be done in view of clause
(c) of Rule 28 of CGST Rules, 2017. Since cost of supply of
corporate guarantee services cannot be determined, valuation
is to be done as prescribed in clause (c) of Rule 28 of CGST
Rules, 2017. Therefore, the valuation of corporate guarantee
prescribed and valuation of supply for competing the tax
liability is 1% per annum on the amount guaranteed in the
impugned show cause notice, and therefore, the Petitioner is
liable to pay GST over that corporate guarantee.
44 WP.2087-2025.JUDGMENT.odt
We are, however, unable to agree with this
proposition as corporate guarantee is a guarantee given by
the corporate to cover their own exposure or exposure of
some other related entity to their bank. A bank guarantee is
given by a bank on behalf of the customer to the beneficiary
bank guaranteeing the payment in case of default by
customer, whereas corporate guaranties are issued in order to
safeguard the financial health of their associate enterprises
and to provide it support. Admittedly, corporate guarantee is
actually an in-house guarantee and is not issued to customers
generally. It is not the case of the Respondents that, the
Petitioner is doing the business of corporate guarantee on a
regular basis.
57. This aspect was considered by the Hon'ble Apex
Court in the judgment of Commissioner of CGST & Central
Excise Vs. Edelweiss Financial Services Ltd.,
MANU/SC/0648/2023, wherein, the challenge was to the
concurrent finding in favour of the Assessee recorded by the
Principal Commissioner GST which was upheld by the CGST
Tribunal. The Hon'ble Apex Court has considered the
45 WP.2087-2025.JUDGMENT.odt
observation of the Tribunal in para 8 and 9, which are
reproduced as under:
"8. The criticality of 'consideration' for determination of
service, as defined in Section 65B (44) of Finance Act,
1994, for the disputed period after introduction of
'negative list' regime of taxation has been rightly
construed by the adjudicating authority. Any activity
must, for the purpose of taxability under Finance Act,
1994, not only, in relation to another, reveal a 'provider',
but also the flow of 'consideration' for rendering of the
service. In the absence of any of these two elements,
taxability under Section 66B of Finance Act, 1994 will
not arise. It is clear that there is no consideration insofar
as 'corporate guarantee' issued by respondent on behalf
of their subsidiary companies is concerned.
9. The reliance placed by Learned Authorised
Representative on the 'non-monetary benefits' which may,
if at all, be of relevance for determination of assessable
value under Section 67 of Finance Act, 1994 does not
extend to ascertainment of 'service' as defined in Section
65B(44) of Finance Act, 1994. 'Consideration' is the
recompense for the 'contractual' undertaking that
authorizes levy while 'assessable value' is a determination
for computing the measure of the levy and the latter must
follow the former."
58. The Hon'ble Apex Court observed that, the above
would suggest that this was a case where the assessee had not
received any consideration while providing corporate guarantee
to its group companies. No effort was made on behalf of the
Revenue to assail the above finding or to demonstrate that
issuance of corporate guarantee to group companies without
consideration would be a taxable service. In these
46 WP.2087-2025.JUDGMENT.odt
circumstances, in view of such conclusive finding of both
forums, we see no reason to admit this case basing upon the
pending Civil Appeal No. 428 @ Diary No.42703/2019,
particularly when it has not been demonstrated that the factual
matrix of the pending case is identical to the present one.
59. Thus, the Hon'ble Apex Court's decision on the issue
whether the corporate guarantee are taxable under the service
tax regime, the Hon'ble Apex Court held that, corporate
guarantee given without consideration are not taxable within
the meaning of the act. The Hon'ble Apex Court further
considered that, an activity to be taxable under the Finance Act,
1994, it must not only involve a provider but also a flow of
consideration for the rendering of the service. In the absence of
either of these elements, taxability under Section 66B of the
Finance Act, 1994 does not arise.
60. Whether the act of the Petitioner is within the scope
of Section 7 i.e. supply which is defined thereunder:
(1) For the purposes of this Act, the expression-
supply includes--
47 WP.2087-2025.JUDGMENT.odt
(a) all forms of supply of goods or services or both
such as sale, transfer, barter, exchange, licence, rental,
lease or disposal made or agreed to be made for a
consideration by a person in the course or furtherance of
business;
(b) import of services for a consideration whether or
not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed
to be made without a consideration;
61. Thus, A plain reading of the definition of the term,
"supply" as above would indicate that the meaning attributed to
the term is that of wide amplitude, but, yet is an inclusive one.
On a perusal of the definition it can be seen that the essential
ingredients required for an activity/transaction to come within
the meaning and scope of supply as defined above.
62. Similarly, Section 2(102) defines "service" as
meaning anything other than goods, money and securities but
includes activities relating to the use of money or its conversion
by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for
which a separate consideration is charged.
48 WP.2087-2025.JUDGMENT.odt
63. In view of clause (a) of Sub-Section (1) of Section 7
of the CGST Act, 2017, a supply of services such as sale,
transfer, license, rental or lease made for consideration is a
supply.
As per the Respondents the activity of providing
corporate guarantee covered under "supply of service", hence
taxable. The meaning and scope of supply under the GST as
defined can be understood in terms of following 6 parameters
which can be adopted to characterized a transaction as supply:
(i) Supply of goods or services. Supply of anything other than
goods or services does not attract GST; (ii) Supply should be
made for consideration; (iii) Supply should be made in the
course or in furtherance of business; (iv) Supply should be
made by taxable person; (v) Supply should be taxable supply
and (vi) Supply should be made within the tax.
Admittedly, all three corporate guarantees in the
present case, wherein specific clause is "the corporate guarantor
hereby declares and agrees that the corporate guarantor has not
received and shall not receive any security, fee, commission or
49 WP.2087-2025.JUDGMENT.odt
any other consideration from the borrower for giving this deed
so long as any monies remain due and payable by the borrower
to the lender under the common loan agreement and the other
finance documents". This clause itself shows that, the supply
was not for consideration.
64. As already observed that the Hon'ble Apex Court in
the case of Commissioner of CGST & Central Excise Vs.
Edelweiss Financial Services Ltd., (supra) wherein it was held
that issuance of Corporate Guarantee to a group company
without consideration would not fall within banking and other
financial services and was thus held to be non-taxable service.
65. The Hon'ble Apex Court after considering the
submissions of both the sides, found that in the present case,
assessee had not received any consideration while providing
corporate guarantee to its Indian group companies. There was
no effort made on behalf of the Appellant to assail the finding or
to show that issuance of corporate guarantee to group
companies in India without consideration would be a taxable
50 WP.2087-2025.JUDGMENT.odt
service. By observing this, the Hon'ble Apex Court has dismissed
the appeal filed by the department.
66. Thus, it was held that for an activity to be taxable
under the Finance Act, 1994, it must not only involve a
'provider' but also a flow of 'consideration' for the rendering of
the service. In the absence of either of these elements, taxability
under Section 66B of the Finance Act, 1994 does not arise. The
Hon'ble Apex Court found that there was no consideration for
the corporate guarantees issued by the respondent on behalf of
their subsidiary companies then it is not a taxable service.
67. By applying the above said terms to the facts of the
present case, admittedly, the impugned Circular No.
204/16/2023 dated 27.10.2023 has clarified that the activity of
providing corporate guarantee by a person on behalf of another
related person, or by the holding company for sanction of credit
facilities to its subsidiary company, to the bank/financial
institutions, even when made without any consideration will be
treated as a taxable supply of service. It is further clarified by
the said circular that the supply of service of providing
51 WP.2087-2025.JUDGMENT.odt
corporate guarantee to any banking company or financial
institution by a supplier to a related recipient, on behalf of the
said recipient, was taxable even before the insertion of Sub-Rule
(2) in Rule 28 of CGST Rules, 2017 with effect from
26.10.2023, whereas the aforesaid impugned circulars were
issued by the Respondent No.1 through its board in exercise of
powers conferred by Section 168(1) of the CGST Act, 2017.
68. However, now the issue is covered under the
judgment of the Hon'ble Apex Court in the case of
Commissioner of CGST & Central Excise Vs. Edelweiss
Financial Services Ltd., (supra), wherein in specific words the
Hon'ble Apex Court has observed that, issuance of corporate
guarantee to group companies without any consideration
would not fall within the ambit of taxable service. Therefore,
there is a substance in the contention of the learned Counsel
for the Petitioner that execution of corporate guarantee is in
the nature of contingent contract which becomes enforceable
only at the instance of the bank/financial institution in the
event of a default. There was no flow of consideration for the
rendering of services. Therefore, taxability does not arise.
52 WP.2087-2025.JUDGMENT.odt
There was no consideration for the corporate guarantees
were issued by the Petitioner on behalf of the companies.
69. Thus, considering the corporate guarantee is a
guarantee of one corporate unit to keep itself responsible for
the financial obligations or any other contractual obligations
of the principal debtor to the creditor on behalf of principal
debtor. Corporate guarantees are issued without any security,
whereas bank guarantee mostly require security against offer
of such guarantee. Corporate guarantees are meant to
provide assurances to the beneficiaries with same thin line
distinction. Corporate guarantee depends on the credit
worthiness of the parent-company/guarantor.
70. Thus, executing a corporate guarantee to its
subsidiary is not in the nature of supply and supply of service
taxable under Section 9 of the CGST Act, 2017.
71. The specific clauses in all three guarantees
specifically states that the Petitioner has neither received any
commission and shall not receive any commission from the
borrower company for providing corporate guarantee. In
53 WP.2087-2025.JUDGMENT.odt
absence of any consideration, the case of the Petitioner would
cover by the judgment of the Hon'ble Apex Court, and
therefore, the proceeding initiated against the present
Petitioner by issuing show cause notice No.02/2025-GST
dated 28.01.2025 issued by the office of the Respondent No.3
and made answerable to Respondent No.4 deserves to be
quashed and set aside.
72. The another issue raised by the Petitioner is
regarding the constitutional validity of the amendment 28(2)
by contending that the said amendment is against legal
provisions, and therefore, be declared as ultravires. As far as
the issue regarding the constitutional validity is concerned,
the scope of judicial interference on challenge to vires is
settled.
73. Judicial intervention when faced with
constitutional challenge to fiscal statutes has been the subject
matter before the Hon'ble Apex Court since the initiation of
the Constitution of India. It is well settled that there is a
minimal scope for challenge to constitutional validity. The
54 WP.2087-2025.JUDGMENT.odt
law is very clear that Legislature should be allowed some play
in the joints because it has to deal with complex problems
which do not admit of a solution through any doctrine or
straitjacket formula.
74. It is observed by the Hon'ble Apex Court in the
case of R. K. Garg vs. Union of India, MANU/SC/0074/1981 ,
that every legislation particularly in economic matters is
essentially empiric and it is based on experimentation. There
may be crudities, inequities and even possibilities of abuse
but on that account alone it cannot be struck down as invalid.
These can always be set right by the Legislature by passing
amendments. The Court must therefore adjudge the
constitutionality of such legislation by the generality of its
provisions. Laws relating to economic activities should be
viewed with greater latitude than laws touching civil rights
such as freedom of speech, religion, etc. Moreover, there is
always a presumption in favour of the constitutionality of a
statute and the burden is upon he who attacks it to show that
there has been a clear transgression of the constitutional
principles. The Legislature understands and correctly
55 WP.2087-2025.JUDGMENT.odt
appreciates the needs of its own people; its laws are directed
to problems made manifest by experience and its
discrimination is based on adequate grounds.
75. In considering the constitutionality, the Court may
take into consideration matters of common knowledge,
matters of common report, the history of the times and may
assume every state of facts which can be conceived existing at
the time of legislation.
76. The basic principles governing legislative power in
the context of the present case can be culled out by the
Hon'ble Apex Court in the case of Hoechst Pharmaceuticals
Ltd. Vs. State of Bihar, MANU/SC/0392/1983 : and in the
decision of the Constitution Bench in State of West Bengal
Vs. Kesoram Industries Limited MANU/SC/0038/2004, and
held that, in matters of taxation, the Court must defer to
legislative judgment and policy. Where a statute empowers
the Government to grant exemption from tax to any specified
class, in public interest, the Court would not question the
policy of the Government in exercising this power or interfere
56 WP.2087-2025.JUDGMENT.odt
merely because the exemption granted has been confined to
new units and not extended to all units doing the same
business. Mere excessiveness of tax or the absence of
corrective machinery would not render the tax as an
unreasonable burden and thereby violative of Article 19(1)
(g).
77. A taxing statute is not per se regarded as a
restriction on freedom under Article 19(1)(g) even if it
imposes some hardships in individual cases. The mere
excessiveness of tax or even the circumstances that its
imposition might tend towards the diminution of earnings or
profits of the persons of incidence does not, per se, and
without more, constitute violation of rights under Article
19(1)(g). Courts do not usually interfere with attacks on the
ground of it being excessive or it imposes a heavy burden on
trade and commerce or that the profits of business are greatly
reduced thereby. Taxation law is not open to attack on the
ground of inequality, even though the result of taxation may
be that the total burden on different persons may be unequal.
Courts in view of the inherent complexity of fiscal adjustment
57 WP.2087-2025.JUDGMENT.odt
of diverse elements permit a larger discretion to the
Legislature in matter of classification. The power of
Legislature to classify is of wide range and flexibility so that it
can adjust its system of taxation in all proper and reasonable
ways.
78. The Hon'ble Apex Court has time and again
reiterated that Courts do not sit in appeal over the decisions
of the Government to do merit review of the subjective
decision and that Government decisions concerning public
revenue have an intricate economic value attached to them
and to elevate the standard of review on the basis of
subjective understanding of the subject matter being
extraordinary would be dehors the review jurisdiction.
79. In the light of the well settled legal position the
impugned challenge made before us declaring Sub-Rule 2 of
Rule 28 be declared as ultravires is not sustainable. There
could be a valid reason administratively, economically etc.,
which goes in the decision making process before such Rule is
amended. The objective behind it may be safeguard or
58 WP.2087-2025.JUDGMENT.odt
administrative reasons, and therefore, the prayer of the
present Petitioner for declaring it ultravires is not sustainable.
Hence, we proceed to pass the following order.
ORDER
i. The Writ Petition is partly allowed.
ii. The prayer in prayer clause (A) and (B) are hereby
rejected.
iii. The show cause notice No.02/2025-GST dated
28.01.2025 issued by the office of the Respondent
No.3 and made answerable to Respondent No.4 is
hereby quashed and set aside.
iv. The proceedings initiated by the Respondent No.2 by
issuing impugned summons dated 20.07.2023 is also
quashed and set aside.
80. Rule is made absolute in the aforesaid terms.
81. Pending application/s, if any, shall stand disposed of
accordingly.
(NIVEDITA P. MEHTA, J.) (URMILA JOSHI PHALKE, J.)
S.D.Bhimte
