Bombay HC stays GST circular on corporate guarantees following Vedanta petition
Bombay High Court has stayed the effect and operation of the GST Circular relating to corporate guarantee on a petition filed by Vedanta. Earlier, the High Courts of Telangana and Punjab & Haryana issued similar orders, while the Delhi High Court granted a stay that no coercive action will be taken against the Petitioner in case a final assessment order is passed or a demand is created.
“We grant time to the Respondents (Central Governments and others) to file their affidavit-in-reply to the above Writ Petition in so far as it lays a challenge to the circular dated October 27, 2023 and also to the extent that the Petitioner (Vedanta Limited) seeks a declaration that the activity of a holding company providing a corporate guarantee to a subsidiary is not in the nature of ‘supply’ and/or ‘supply of service’ taxable under Section 9 of the CGST Act,” a division bench of Justices Firdosh P Pooniwalla and B P Colabawalla said. Also, it allowed the revision of the petition to challenge the retrospective amendment in the GST circular.
In its petition, the company sought a declaration that the activity of a holding company providing a corporate guarantee to its subsidiary is not a ‘supply’ and/or ‘supply of service’ taxable under GST law. It also sought a declaration that the tax department be restrained from collecting tax on the activity of providing corporate guarantees to subsidiary companies.
The petition also prayed that the impugned circular dated October 27, 2023, under which the tax is sought to be levied and collected, be declared unconstitutional and ultra vires. Since the notice dated February 1, 2024, was issued to the Petitioner seeking certain information in relation to corporate guarantees for the period July 1, 2017, till March 31, 2021, the said notice was also challenged.
