The Madras High Court has overturned a GST demand relating to a corporate guarantee, determining that the tax authority failed to take into account the CBIC circulars cited by the taxpayer during the assessment process.
Justice G R Swaminathan, while permitting the writ petition, held that an assessment order could not stay if the tax department was unable to consider the defence raised by the taxpayer.
The court held, “When a defence raised by the noticee is not considered in the final order, the order is vulnerable on that ground. On the ground of non-consideration of the contentions raised by the assessee, the impugned order is set aside.”
The applicant, Amman Try Trading Company Private Limited, a Tiruchirappalli-based trader, had provided a corporate guarantee in favour of its affiliated party. The State Tax Officer ministered the act of providing the corporate guarantee itself as a taxable service under GST and proceeded to charge tax at the rate of 1% of the corporate guarantee amount.
On April 28, 2025, an assessment order in Form GST DRC-07 was passed against the company.
In its response to the show cause notice, the company did not contest the examination of corporate guarantees under GST. Instead, its argument centred on valuation.
The company stated that it had not received any compensation for providing the guarantee and referred to GST Circular No. 199/11/2023-GST dated July 17, 2023, and Circular No. 210/4/2024-GST dated June 26, 2024, along with Rule 28 of the CGST Rules.
It is claimed that where a supply is made to a pertinent party eligible for the whole ITC, the value shown in the invoice is considered to be the open market value. As no consideration was imposed, the value of the service was opted as nil, and no invoice was issued.
The HC said that while the tax officer has given Show Cause Notices and obtained a response therefore the final assessment order does not deal with the two CBIC circulars, particularly relied upon by the taxpayer.
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The court, after determining the defence of the taxpayer, set aside the assessment and sent the case back for reconsideration. It asked the tax officer to proceed with all the claims raised by the applicant and pass a fresh, reasoned order as per the law.
| Case Title | M/s.Amman Try Trading Company Private Limited vs The State Tax Officer |
| Case No. | W.P(MD)No.20110 of 2025 |
| For Petitioner | Mr.M.Karthikeyan for Mr.S.Jai Kumar |
| For Respondent | Mr.R.Suresh Kumar Additional Government Pleader |
| Madras High Court | Read Order |
