The Supreme Court has classified ‘Mortgagor’ as ‘Guarantor’.
The bench of Justice Abhay S Oka and Justice Pankaj Mithal has observed that if after the sale of hypothecated assets, there is any shortfall in the discharge of the liabilities of the Corporate Debtor is under an obligation to pay the shortfall or deficiency. Therefore, the Corporate Debtor, who is not the borrower, agreed to discharge the liability of the third parties in the case of default. Therefore, it amounts to a guarantee provided by the Corporate Debtor to the appellants in terms of Section 126 of the Contract Act.
The bench held that the mortgagor, who was not a direct borrower, assumed the responsibility of discharging the liability of third parties in the event of their default. This obligation to pay the shortfall was deemed a guarantee.
‘Mortgagor’ As ‘Guarantor’ : GST Implications & Confusion
No GST is applicable on mortgage. However, the GST on corporate guarantees is 18%, with an HSN Code of 999799. GST on corporate guarantee is calculated as 1% of the guarantee amount if no fee is charged or on the actual fee when one exists.
The Supreme Court’s ruling classifies the transaction as both a mortgage and a guarantee, but GST applicability requires further examination. This raises questions about GST implications for such transactions, especially in corporate guarantee arrangements.
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Case Details
Case Title: China Development Bank versus Doha Bank Q.P.S.C. & Ors.
Case No.: Civil Appeal No. 7298 Of 2022
Date: 20/12/2024
