The issue whether providing Corporate Guarantee by one company to other Group Company attracts GST, is debatable issue. The Group concerns will normally fall in definition of related parties and therefore even without consideration there may be taxable supply as per entry 2 in Schedule I to CGST Act. The said entry reads as under:
“SCHEDULE I
[See section 7]
ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATI
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.”
The moot question will be whether the transaction of providing Corporate Guarantee is within scope of business. Normally for Corporates (generally not in Finance business) giving Corporate Guarantee cannot be business.
Accordingly the transaction should not be within course of business. There is also alternative argument that it is actionable claim as the bank to whom Corporate Guarantee is given can pursue its recovery from guarantor in court of law.
Therefore in my view the Corporate Guarantee cannot be liable under GST.
If at all considered liable to GST then valuation is one more issue. The Rule 28 provides for valuation when parties are related parties. Rules 30 and 31 also provide for valuation. The corporate guarantee being party specific open market method may not be feasible. Here comparison can be made with financial institutions and banks charging their clients for giving guarantees. Still situational difference will remain as banks have varying methods under different schemes. However, if subsidiary company is eligible to get full ITC then any valuation will be permissible. If full ITC not eligible then valuation can be under Rule 28,30 or 31 i. e. reasonable value.