GST on Corporate Guarantees: While previously Bombay Says No Supply, Gujarat Says No Retrospective Levy

Legal Updates
August 25, 2026

Home - GST on Corporate Guarantees: While previously Bombay Says No Supply, Gujarat Says No Retrospective Levy

Brief Overview:

Corporate guarantees given for “free” were sought to be brought within the GST net as a “supply” of services, and that too, retrospectively and on the basis of the higher deemed value prescribed under Rule 28(2).

The two High Courts have now approached the issue differently. The Bombay High Court dealt with the matter as a threshold issue and held, on the facts, that there was no consideration and therefore no taxable supply. The Gujarat High Court, however, held that related-party guarantees may be taxable even without consideration, while preventing the revenue from applying Rule 28(2) retrospectively or treating the 1% valuation as an automatic floor.

The latest ruling, delivered by the Gujarat High Court, is a useful, though uneven, taxpayer win. In short, even where taxability remains contested, retrospectivity has been checked and valuation has been tied more closely to business reality.

Technical Details:

Supply upheld in principle: The Gujarat High Court disagreed with the Bombay High Court’s view that nil-consideration corporate guarantees did not meet the taxable supply test, and held instead that related-party corporate guarantees may be taxable even without consideration.

The Hon’ble Gujarat High Court went on to hold the following:

1) Rule 28(2) upheld, but narrowed: The 1% deemed value cannot override a lower actual guarantee commission.

2) No retrospective bite before 26^th October 2023: Rule 28(2) applies prospectively and cannot create GST liabilities for periods prior to 26 October 2023; even continuing guarantees may be covered only on a prospective basis.

3) Section 74 not a shortcut: Bona fide disputes cannot be dressed as a suppression or fraud and do not justify extended limitation or penalty.

4) Foreign recipient carve-out: Amended Rule 28(2) applies only where the recipient is located in India.

JC takeaway:

1) Immediate review point for groups: Review outstanding guarantees and reassess GST exposure from 26 October 2023.

2) Refund / adjustment window: Taxpayers may evaluate refunds or adjustments where GST was paid despite the Bombay High Court judgment, or on a mechanical 1% basis contrary to the Gujarat High Court ruling, subject to limitation, unjust enrichment and factual eligibility.

3) Contracting and documentation: For guarantees being issued going forward, parties should record the commercial rationale, guarantee commission policy, internal approvals, recipient location etc.

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