Punjab & Haryana HC stays CBIC Circular on corporate guarantee which seeks to take away adjudicatory power of authorities

M/S Acme Cleantech Solutions Pvt Ltd v. Union of India

M & C comment:
High court stayed the CBIC circular which arbitrarily levies GST on personal guarantee or corporate guarantee given to banks or financial institutions. The circular says the personal guarantee (by director of the company) or corporate guarantee (one corporate to another corporate) given to banks or financial institutions shall be treated as supply even if made without consideration. This view of the Government will put many transactions under the scanner and litigations will only mount.

The case:

The petitioner filed a writ petition to challenge the part of the Circular issued by CBIC which clarified the taxability of corporate guarantees provided by a company. The challenge to the said Circular was on the ground that it seeks to take away the adjudicatory powers of the Assessing Authority as well as the Appellate Authority. It contended that a Circular cannot seek to take away the adjudicatory powers by clarifying the provisions which are in the nature of adjudication.

In addition, the petitioner also referred to an interim order passed by the High Court of Delhi which dealt with a similar issue.

The Honorable High Court noted that the petitioner preferred an appeal against the demand and the CBIC issued a clarification vide item No. 2 in the impugned Circular. The Court also issued notice to the revenue since the impugned Circular directly impinges upon the powers of Appellate Authority and the very purpose of filing of appeal stands negated.

Moreover, the Court, as a measure of interim relief, granted stay on the operation of the impugned Circular which provide clarification on taxability of corporate guarantee provided by companies. The Court also directed that the Appellate Authority shall be free to decide the case of the petitioner without being influenced by the impugned clarification.