The agenda for the 52nd GST Council meeting to be held on 7th October, 2023 is as follows:
- Setting up GST Appellate Tribunals: The Council is expected to discuss and finalize the modalities for setting up GST Appellate Tribunals across the country. This has been a long-pending demand from taxpayers, as it will provide them with a forum to appeal against GST orders passed by lower authorities.
- Review of GST rates on certain goods and services: The Council may also review the GST rates on certain goods and services, such as millets, molasses, and e-commerce services.
- Progress on implementation of GST reforms: The Council is also expected to review the progress made by states and Union Territories in implementing various GST reforms that have been recommended by the Council in the past. This includes removing the mandatory GST registration requirement for e-commerce sellers and simplifying the e-way bill rules for the intrastate movement of gold and precious stones.
In addition to the above, the Council may also discuss any other GST-related matters that are brought before it. One Such Key Matter is Corporate Guarantee.
Corporate Guarantee
Corporate guarantee is not listed on the agenda for the 52nd GST Council meeting to be held on 7th October, 2023. However, the GST Council has been considering the issue of taxation of corporate guarantees for some time now. In fact, the Council’s law committee has held several meetings on this issue in recent months.
Some experts believe that corporate guarantees should be taxed as financial services, while others believe that they should be exempt from GST. The GST Council is likely to take a final decision on this issue in the coming months.
If the GST Council decides to tax corporate guarantees, it will be interesting to see how the tax is valued and levied. For example, it is not clear whether the tax will be levied on the value of the guarantee or on the amount of money that the guarantor actually pays out in the event of a default.
The GST Council’s decision on corporate guarantees will have a significant impact on businesses, especially large corporations. If corporate guarantees are taxed, it will increase the cost of doing business for these companies.
What is Actually the Matter on Corporate Guarantee
A corporate guarantee is a promise by one company to another company to pay off a debt or fulfill an obligation if the debtor fails to do so. Corporate guarantees are commonly used in business transactions, such as when a parent company guarantees the debts of its subsidiary or when a supplier guarantees the performance of a contract.
Provisions of Law
The Goods and Services Tax (GST) Act, 2017 does not explicitly mention corporate guarantees. However, Schedule I to the CGST Act deems certain transactions to be supplies, even if they are made without consideration. One of these transactions is the supply of goods or services by a related person to another related person in the course of or in furtherance of business.
Taxability of Corporate Guarantees
Based on the above provisions, it is argued that corporate guarantees given in favor of related parties are taxable under GST, even if they are made without consideration. This is because a corporate guarantee is a service that provides financial security to the creditor.
However, there are also arguments against the taxability of corporate guarantees. For example, it is argued that a corporate guarantee is not a supply of goods or services, but rather a contract of indemnity. It is also argued that corporate guarantees are not made in the course of or in furtherance of business, but rather to protect the guarantor’s own financial interests.
Current Status
The current status of the taxation of corporate guarantees under GST is unclear. There have been no judicial pronouncements on this issue so far. In the absence of clear guidance from the law or the courts, taxpayers are advised to take a cautious approach and pay GST on corporate guarantees given in favor of related parties.
I believe that the GST Council should clarify the taxability of corporate guarantees. The current uncertainty is causing confusion and hardship for businesses. The GST Council should either exempt corporate guarantees from GST or provide clear guidelines on how they should be taxed.
