• Dated 18^th June, 2026

No GST on Corporate Guarantees Extended to Subsidiaries Without Consideration – Bombay HC

BRIEF FACTS:

The Assessee, engaged in the business of construction of highways and infrastructure projects, furnished corporate guarantees in favour of banks for securing loans sanctioned to its subsidiary and group companies for execution of road projects under various NHAI models. The guarantee deeds specifically provided that the petitioner had neither received nor would receive any fee, commission, security, or any other consideration for furnishing such guarantees. Subsequently, the Directorate General of GST Intelligence (DGGI) initiated proceedings alleging non-payment of GST on the corporate guarantees furnished by the petitioner. The proceedings were based on CBIC Circular No. 204/16/2023-GST dated 27.10.2023 and Circular No. 225/19/2024-GST dated 11.07.2024, which clarified that corporate guarantees provided between related parties would be treated as taxable supplies of services under GST. Aggrieved by the initiation of GST proceedings and challenging the validity of the aforesaid circulars and the related valuation provisions, the petitioner approached the Bombay High Court contending that no GST could be levied on corporate guarantees furnished without any consideration.

ASSESSEE'S CONTENTION:

The assessee contended that the corporate guarantees were furnished solely to enable its subsidiary and group companies to obtain loans from banks and financial institutions, and no fee, commission, security, or any other consideration was received or receivable for providing such guarantees. Therefore, in the absence of consideration, the essential ingredients of a taxable supply under GST were not satisfied. It was further argued that CBIC Circular No. 204/16/2023-GST could not create a tax liability by merely declaring corporate guarantees as taxable supplies of services. Whether an activity is taxable must be determined under the provisions of the CGST Act, and not through executive circulars. The assessee also submitted that a corporate guarantee is not a taxable supply under the CGST Act and, in any event, could at best fall within the realm of an actionable claim, which is neither a supply of goods nor a supply of services under Schedule III of the CGST Act. Additionally, it was contended that all the guarantees had been executed prior to the amendment of Rule 28 and the issuance of the impugned circulars, and therefore the subsequent amendments and clarifications could not be used to fasten GST liability on the petitioner. The assessee relied upon the express clauses in the guarantee deeds stating that no consideration had been received and placed reliance on various judicial precedents, including the Supreme Court's decision in Edelweiss Financial Services Ltd., to contend that in the absence of consideration, no taxable service could be said to have been rendered.

DEPARTMENT'S CONTENTION:

The Department contended that furnishing a corporate guarantee on behalf of a related party amounts to the provision of a service and is therefore liable to GST. Since the guarantees were provided by the petitioner for its subsidiary/group companies, the transaction fell within the scope of supplies between related persons and was taxable even if no consideration was charged. It was argued that the investigation conducted earlier by the State GST authorities did not cover the issue of GST on corporate guarantees. Therefore, the DGGI was competent to independently initiate proceedings on this specific issue. The Department further submitted that prior to the insertion of Rule 28(2), valuation of such transactions could still be undertaken under Rule 28(1), particularly under Rule 28(1)(c), where open market value could not be determined. Accordingly, GST liability on corporate guarantees could be determined under the existing valuation provisions. It was also contended that Notification No. 52/2023-Central Tax and the subsequent CBIC Circulars merely clarified the valuation mechanism and tax treatment of corporate guarantees provided between related parties. Therefore, the proceedings initiated for recovery of GST on the corporate guarantees were legal and valid.

DECISION:

The Bombay High Court allowed the writ petition and held that the proceedings initiated against the petitioner for levy of GST on corporate guarantees were unsustainable. The Court observed that all the corporate guarantee deeds expressly stated that the petitioner had neither received nor would receive any fee, commission, security, or other consideration for furnishing the guarantees. The Court noted that although a corporate guarantee may contain an element of service, GST can be levied only when the statutory requirements of a taxable supply are satisfied. Relying upon the Supreme Court's decision in Edelweiss Financial Services Ltd., the Court held that a taxable service requires the existence of consideration flowing from the recipient to the provider. In the absence of any consideration, the essential ingredients of a taxable supply were not fulfilled. The Court further observed that the petitioner was not engaged in the business of providing guarantees and had furnished the guarantees only to facilitate financing for its subsidiary and group companies. Accordingly, the Court quashed the proceedings initiated by the Department and held that corporate guarantees furnished without consideration could not be subjected to GST.

BTA's COMMENT:

The decision is a significant ruling on the GST implications of corporate guarantees furnished by holding companies for their subsidiaries and group entities. The Bombay High Court reaffirmed that consideration is a fundamental prerequisite for levy of GST on a supply of services and that a tax liability cannot be imposed merely through administrative circulars where the essential ingredients of a taxable supply are absent. By relying on the Supreme Court's decision in Edelweiss Financial Services Ltd., the Court provided substantial relief to corporate groups by holding that corporate guarantees furnished without any fee, commission, or other consideration do not attract GST. The judgment is likely to have far-reaching implications for ongoing disputes relating to the taxability of inter-company corporate guarantees under the GST regime.

Case Reference- D P Jain & Co. Infrastructure Pvt. Ltd. v. Union of India (Writ Petition No. 2087 of 2025, Bombay High Court, Nagpur Bench, decided on 06 May 2026)

Author- Shristy Pathak

Edited by- Madhurima Bose