Valuation of Corporate Guarantee Provided between Related PersonsAn OverviewCS. Pradeep Vyas

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The Tax Publishers GST--Value of Supply Valuation of Corporate Guarantee Provided between Related Persons--An Overview CS. Pradeep Vyas The learned author seeks to make an overview of method of determination of value of supply of service by way of corporate guarantee between related persons, in view of recent amendments made in the CGST Rules, 2017. 1. Introduction Central Goods and Services Tax Rules, 2017 (in short 'CGST Rules') was amended pursuant to recommendation of the GST Council by issuing Notification No. 52/2023-Central Tax, dt. 26-10-2023, whereby, sub-rule (2) was inserted under rule 28 to make specific rule with regard to valuation of supply of services by way of providing corporate guarantee by an entity on behalf of a related person. Later sub-rule (2) was amendment pursuant to recommendation of the GST council in its 53rd meeting held on 22-6-2024, by issuing Notification No. 12/2024, dt. 10-7-2024 and a clarification has also been issued with regard to the taxability and valuation of corporate guarantees provided on behalf of related persons for GST purposes. Let us make an overview of valuation of corporate guarantee provided between related persons in view of the amendment and clarification. 2. Amendment of Rule 28 and CBIC's clarification Rule 28 of CGST Rules deals with the valuation of supply of goods or services or both between distinct or related persons, other than through an agent. Notification No. 52/2023-Central Tax, dtd. 26-10-2023 has inserted sub-rule (2) under Rule 28, which reads as under :-- "(2) Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related person, by way of providing corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered, or the actual consideration, whichever is higher." The above rule was further amended vide Notification No. 12/2024-Central Tax, dtd. 10-7-2024, retrospectively, with effect from 26-10-2023, which reads as under: "(i) in sub-rule (2),- (a) after the words 'who is a related person', the words 'located in India' shall be inserted; SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

GST--Value of Supply

Valuation of Corporate Guarantee Provided between Related Persons--An Overview

CS. Pradeep Vyas

The learned author seeks to make an overview of method of determination of value of supply of service by way of corporate guarantee between related persons, in view of recent amendments made in the CGST Rules, 2017.

1. Introduction

Central Goods and Services Tax Rules, 2017 (in short 'CGST Rules') was amended pursuant to recommendation of the GST Council by issuing Notification No. 52/2023-Central Tax, dt. 26-10-2023, whereby, sub-rule (2) was inserted under rule 28 to make specific rule with regard to valuation of supply of services by way of providing corporate guarantee by an entity on behalf of a related person. Later sub-rule (2) was amendment pursuant to recommendation of the GST council in its 53rd meeting held on 22-6-2024, by issuing Notification No. 12/2024, dt. 10-7-2024 and a clarification has also been issued with regard to the taxability and valuation of corporate guarantees provided on behalf of related persons for GST purposes. Let us make an overview of valuation of corporate guarantee provided between related persons in view of the amendment and clarification.

2. Amendment of Rule 28 and CBIC's clarification

Rule 28 of CGST Rules deals with the valuation of supply of goods or services or both between distinct or related persons, other than through an agent.

Notification No. 52/2023-Central Tax, dtd. 26-10-2023 has inserted sub-rule (2) under Rule 28, which reads as under :--

"(2) Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related person, by way of providing corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered, or the actual consideration, whichever is higher."

The above rule was further amended vide Notification No. 12/2024-Central Tax, dtd. 10-7-2024, retrospectively, with effect from 26-10-2023, which reads as under:

"(i) in sub-rule (2),-

(a) after the words 'who is a related person', the words 'located in India' shall be inserted;