Gujarat High Court: Torrent Power Ltd. v. Union of India & Ors. [R/Special Civil Application No. 12175 of 2024 & connected matters]
The petitioners challenged the GST levy on intra-group corporate guarantees under Schedule I, Section 7 of the CGST Act and the valuation mechanism under Rule 28(2), particularly the mandatory 1% valuation.
The Gujarat High Court held that intra-group corporate guarantees constitute a taxable supply under Schedule I read with Section 7 of the CGST Act, even without consideration. However, the 1% valuation prescribed under Rule 28(2) is not mandatory where the actual consideration is ascertainable. The 1% deeming value applies only where the guarantee is provided gratuitously or its value cannot otherwise be determined, with the valuation being linked to the outstanding guarantee amount.
Key takeaway: Intra-group corporate guarantees are taxable under GST, but the 1% deemed valuation is not mandatory where actual consideration is ascertainable.
GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.