Corporate Guarantee Not Taxable

The Bombay High Court (Nagpur Bench) held that a corporate guarantee issued by a holding company in favour of banks for loans granted to its group entities, without any consideration, does not automatically constitute a taxable supply under the GST regime. 

The Court observed that a corporate guarantee is essentially an in-house support mechanism intended to safeguard the financial interests of group companies and cannot be equated with a commercial guarantee service rendered in the ordinary course of business. 

Accordingly, the Court set aside the proceedings initiated for levy of GST on such corporate guarantees and held that the impugned circulars could not create a tax liability beyond the scope of the statute.