The Madras High Court has granted interim relief to taxpayers by staying GST demand orders imposing tax on the provision of corporate guarantees, observing that the challenge raises important questions regarding the retrospective application of Rule 28(2) of the Central Goods and Services Tax (CGST) Rules and the valuation of corporate guarantee transactions where the recipient is entitled to full Input Tax Credit (ITC).
The interim order was passed by Justice Senthilkumar Ramamoorthy in a batch of writ petitions filed against the Commercial Tax Officer.
The petitions challenged GST demand orders levying tax on corporate guarantees extended by the petitioner company to related entities. A principal contention raised before the Court was that sub-rule (2) of Rule 28 of the CGST Rules—which specifically prescribes the valuation mechanism for corporate guarantees between related persons—was introduced only with effect from 26 October 2023. Since the impugned demand orders related to periods prior to the introduction of the provision, the petitioner argued that the authorities could not retrospectively apply the amended valuation rule.
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Apart from the issue of retrospective applicability, the petitioner also contended that the recipients of the corporate guarantee services were entitled to full Input Tax Credit (ITC). Consequently, the invoice value declared by the parties ought to have been accepted for valuation purposes under the GST framework, instead of adopting an alternative valuation methodology leading to enhanced tax demands.
After considering these submissions, the bench found that the issues raised warranted judicial examination. Without expressing any final opinion on the merits of the dispute, the Court granted an interim stay on the operation of the impugned GST orders as well as all consequential proceedings arising from them.
The Court directed that the interim protection shall continue until the next date of hearing and listed the batch of writ petitions for 24 August 2026.
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