GST Alert: Gujarat HC on Corporate Guarantees
Gujarat High Court Rules in Torrent Power Ltd.
GST on corporate guarantees between related persons without consideration
In a landmark judgment dated 14 August 2026, the Gujarat High Court in Torrent Power Ltd. v. Union of India & Ors. ruled on the GST treatment of corporate guarantees between related persons — the validity of Rule 28(2), the temporal scope of the 1% deemed valuation, and the limits of Section 74.
How we got here
Key findings of the Court
Taxability upheld
A guarantee by a holding company for its subsidiary is a supply between related persons under Schedule I, even without consideration.
Rule 28(2) & Sec 15(4) valid
Constitutional validity upheld: the statute permits a specialised valuation mechanism for related-party supplies.
No retrospective application
Rule 28(2) cannot apply before 26 Oct 2023. Guarantees continuing beyond that date attract GST prospectively.
"Whichever is higher" read down
Where actual consideration is ascertainable and lower than 1%, the deemed value cannot be forced on the taxpayer.
Circulars cannot override statute
CBIC circulars may operationalise the law but cannot create a levy; inconsistent portions cannot prevail.
Section 74 proceedings quashed
A bona fide dispute on unsettled law is not fraud, wilful misstatement or suppression; proceedings were quashed.