We intend to apprise you on recent disputes being raised by revenue on GST implications on Personal and Corporate Guarantee provided by Directors and Group Companies.

Directors and Group Companies often provide guarantee to bank to facilitate loans and overdraft facility. Generally, Directors and Group Companies do not recover any amount from borrower for such guarantee.

These activities qualify as ‘supply’ from directors and group companies to respective Company under Entry No. 2 of Schedule I of the CGST Act. This entry deems activities between ‘related parties’ as ‘supply’ even when made without consideration. Directors and Group Companies qualify as related parties under Explanation to Section 15 of the CGST Act.

Further, where guarantee is provided by Directors and Foreign Group Companies, liability will arise on Company under RCM.

Revenue is demanding GST in these cases based on highest rates charged by banks for providing such guarantees.

NITYA Comments: It is pertinent to note that where recipient is eligible to avail full ITC, taxpayers can raise self-invoice / tax invoice for nominal value and pay GST thereon. Such value will be deemed as assessable value under the CGST Rules.

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