Gujarat High Court Puts Brakes on GST Proceedings Over Corporate Guarantee Valuation Under Rule 28(2)
Case Reference
Torrent Investment Pvt. Ltd. Vs Union of India & Ors.
Court: Gujarat High Court
Nature of Proceedings: Writ Petition under Article 226 of the Constitution of India
Background and Context
The question of whether GST is leviable on corporate guarantees extended by a holding company to its subsidiaries — particularly when no fee or commission is charged for such guarantees — has been a subject of intense legal scrutiny across multiple High Courts in India. The Gujarat High Court recently became the latest judicial forum to take cognisance of this contentious issue when it admitted a writ petition filed by Torrent Investment Pvt. Ltd. challenging the constitutional validity of Rule 28(2) of the CGST/GGST Rules, 2017, along with certain circulars issued by the government.
The dispute at its core revolves around whether a corporate guarantee furnished by a holding entity on behalf of its subsidiary — without any consideration being charged — constitutes a taxable supply under the GST framework, and whether the deemed valuation mechanism prescribed under Rule 28(2) at 1% per annum of the guaranteed amount is legally sustainable.
The Impugned Provisions and Reliefs Sought
The petitioner approached the Gujarat High Court under Article 226 of the Constitution of India, seeking a bouquet of reliefs directed against the following provisions:
Rule 28(2)of the Central Goods and Services Tax Rules, 2017 and the corresponding Gujarat Goods and Services Tax Rules, 2017- Circular dated 27.10.2023 (Annexure C to the petition)
- Circular dated 11.07.2024 (Annexure J/P to the petition)
Reliefs Prayed For
The petition sought the following reliefs from the Court: