The GST treatment of corporate guarantees between related entities has become a significant area of tax controversy following conflicting High Court decisions in 2026. The issue primarily concerns whether a corporate guarantee provided by one related entity for another constitutes a taxable “supply of service” under the CGST Act, particularly where no separate consideration is charged. The note examines the contrasting approaches of the Gujarat High Court in Torrent Power Ltd. v. UOI (14 August 2026) and the Bombay High Court in D.P. Jain & Co. Infrastructure Pvt. Ltd. v. UOI (7 May 2026).
The Gujarat High Court upheld the taxability of corporate guarantees issued for related entities under Section 7(1)(c) read with Entry 2 of Schedule I, even in the absence of consideration. At the same time, it read down Rule 28(2) by striking down the expression “whichever is higher”, particularly where actual consideration or commission is identifiable. The Bombay High Court, in contrast, held that a gratuitous corporate guarantee may fall outside the scope of “supply” where there is no consideration and characterized such a guarantee as a shareholder or parent-company obligation in the circumstances considered by the court.
The article further examines the valuation of corporate guarantee services, Open Market Value under Section 15(1), Rule 28(2), CBIC Circular No. 204/16/2023-GST, Input Tax Credit, Reverse Charge Mechanism, Time of Supply, foreign holding-company guarantees, and the implications of guarantees issued before and after 26 October 2023. The note recommends obtaining professional valuation, benchmarking guarantee commission against commercial bank guarantee rates, maintaining appropriate inter-company agreements, and reviewing guarantees involving foreign holding companies.
The issue remains particularly important because several related writ petitions are pending before different High Courts and the document anticipates that the conflicting legal questions may ultimately reach the Supreme Court.
For queries, please contact:
Vikramshila Risk Advisory Pvt. Ltd.
Email: info@vsrpl.in
Date of post: 26.08.2026
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Note on taxability and valuation of corporate guarantees