Meetu Kumari | Jan 8, 2026 |
GST Order on Corporate Guarantee Set Aside for Non-Consideration of CBIC Circulars
The petitioner, a private limited company, furnished a corporate guarantee in favour of its related entity without charging any consideration. The State Tax Officer treated the furnishing of such corporate guarantee as a taxable supply of service and levied GST at 1% of the guarantee amount, passing an order in Form GST DRC-07 dated 28.04.2025.
The petitioner challenged the order contending that no consideration was received and that the recipient was eligible for full input tax credit. In its reply to the show cause notice, the petitioner specifically relied upon CBIC Circular No.199/11/2023-GST dated 17.07.2023 and Circular No.210/4/2024-GST dated 26.06.2024, read with Rule 28 of the CGST Rules, 2017. It was argued that in such circumstances, where no invoice is issued and the recipient is eligible for full ITC, the value of supply can be taken as declared (NIL). Still the assessing authority passed the impugned order without examining or dealing with the applicability of the said circulars.
Issue Before Court: Whether an order levying GST on corporate guarantee furnished to a related party can be sustained when the assessing authority fails to consider the assessee’s reliance on binding CBIC circulars and Rule 28 of the CGST Rules.
SC’s Rulling: The Madurai Bench of the Madras High Court held that non-consideration of the specific defence raised by the assessee renders the order vulnerable. The Court reiterated the settled principle of administrative law that when contentions raised in reply to a show cause notice are not dealt with in the final order, the order violates principles of natural justice.
The Court set aside the impugned order dated 28.04.2025 and remitted the matter to the respondent authority. The assessing officer was directed to consider all contentions raised by the petitioner, including the applicability of the two CBIC circulars, and pass a fresh order on merits in accordance with law.
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