The Bombay High Court Nagpur Bench has held that corporate guarantees issued by a holding company on behalf of its group entities without any consideration would not qualify as a taxable supply of service under the GST regime.
The bench of Justice Urmila Joshi Phalke and Justice Nivedita P. Mehtarelied heavily on the Supreme Court’s ruling in Commissioner of CGST & Central Excise vs. Edelweiss Financial Services Ltd. while granting relief to the assessee company has held that corporate guarantee given without consideration are not taxable within the meaning of the act. The Hon’ble Apex Court further considered that, an activity to be taxable under the Finance Act, 1994, it must not only involve a provider but also a flow of consideration for the rendering of the service. In the absence of either of these elements, taxability under Section 66B of the Finance Act, 1994 does not arise.
The petitioner/assessee challenged GST proceedings initiated on corporate guarantees furnished to banks for loans availed by its subsidiary and related companies.
The petitioner company, engaged in infrastructure and highway construction projects, had executed multiple corporate guarantees in favour of State Bank of India and Bank of Maharashtra for loans extended to its associated project entities under HAM and TOT models.
The guarantees related to loans exceeding ₹2,000 crore cumulatively, including a ₹310.63 crore loan for a highway project in Tamil Nadu, a ₹507.36 crore facility for an expressway project, and a ₹1196 crore loan for toll road operations in Gujarat.
Importantly, all the corporate guarantee deeds expressly stated that the petitioner had neither received nor would receive any fee, commission, security, or consideration for issuing the guarantees.
The dispute arose after the Directorate General of GST Intelligence (DGGI), Coimbatore Zonal Unit, initiated investigation proceedings alleging non-payment of GST on corporate guarantees. The petitioner challenged the proceedings along with CBIC Circular No. 204/16/2023 dated 27.10.2023 and Rule 28(2) of the CGST Rules inserted through Notification No. 52/2023-Central Tax.
The CBIC circular had clarified that providing corporate guarantees by a holding company on behalf of its subsidiary, even without consideration, would be treated as a taxable supply of service under GST.
The petitioner argued that GST liability could not be created merely through a circular and contended that corporate guarantees without consideration did not satisfy the statutory requirements of “supply” under Section 7 of the CGST Act. It further argued that corporate guarantees could at best fall within the category of “actionable claims,” which are excluded from GST under Schedule III.
The department defended the proceedings by arguing that valuation of such guarantees had to be determined under Rule 28 read with Rule 31 of the CGST Rules because no open market value existed for corporate guarantees. According to the department, GST liability could be computed at 1% per annum on the guaranteed amount.
After examining the statutory framework, the High Court discussed the meaning of “consideration,” “service,” “supply,” and “corporate guarantee” under GST and contract law. The Court observed that a corporate guarantee is essentially an in-house arrangement provided by a holding or group company to support the financial health of its subsidiaries and is not ordinarily a commercial activity carried out in the regular course of business.
The Court distinguished corporate guarantees from bank guarantees, noting that banks issue guarantees as part of their regular commercial activities and charge fees for the same, whereas corporate guarantees are generally issued internally within a corporate group without consideration.
The Bench specifically noted that the petitioner was not engaged in the business of providing corporate guarantees on a regular basis and that the guarantees were issued solely to secure loans for its subsidiaries and related entities.
Relying on the Supreme Court’s judgment in Edelweiss Financial Services Ltd., the High Court reiterated that for any activity to qualify as a taxable service, there must exist both a service provider and a flow of consideration. In the absence of consideration, no taxable service arises.
The Court reproduced the Supreme Court’s observation that issuance of corporate guarantees to group companies without consideration would not constitute taxable service under the Finance Act, 1994.
Applying the same reasoning under GST law, the High Court held that the corporate guarantees issued by the petitioner lacked the essential ingredient of consideration and therefore could not be treated as taxable supplies.
The Court further observed that the CBIC circular attempting to treat corporate guarantees without consideration as taxable supplies was contrary to the law laid down by the Supreme Court.
The Bench accepted the petitioner’s contention that execution of corporate guarantees is in the nature of a contingent contract enforceable only upon default by the borrower and does not involve any actual flow of consideration for services rendered.
Accordingly, the High Court ruled in favour of the petitioner and held that GST liability did not arise on the corporate guarantees issued without consideration.
Case Details
Case Title: M/s. D P Jain & Co. Infrastructure Private Limited Versus Union of India
Citation: JURISHOUR-1150-HC-2026(BOM)
Case No.: Writ Petition No. 2087 Of 2025
Date: 06/05/2026
Counsel For Petitioner: Bharat Raichandani, Advocate
Counsel For Respondent: Kunal Nalamwar, Advocate
