Shri Amman Steel and Allied Industries Private Limited Vs State Tax Officer
Date: October 5, 2025
Subject Matter
GST Order Set Aside For Non-Consideration of CBIC Circulars on Corporate Guarantee Valuation
Summary
The petitioner, a registered taxpayer, challenged an assessment order that levied GST, interest, and penalty on the service of providing a corporate guarantee in favor of a related party, M/s. Shri Amman Steel and Allied Industries Private Limited.
The petitioner's primary contention was that they did not receive any consideration for the guarantee (i.e., the value was zero). However, the Assessing Officer imposed tax, valuing the service at 1% of the corporate guarantee amount, relying on the substituted Rule 28(2) of the CGST Rules, 2017.
The petitioner argued before the Assessing Officer that the transaction should be governed by the Provisos to Rule 28 and the binding clarifications issued by the CBIC (Circular No. 199/11/2023-GST and Circular No. 210/4/2024-GST), particularly since the recipient was eligible for full Input Tax Credit (ITC). The petitioner claimed the Assessing Officer failed to consider these critical circulars in the final order.
The High Court allowed the Writ Petition and set aside the impugned assessment order.
Violation of Administrative Law: The court found that the Assessing Officer's failure to consider the defense raised by the assessee—specifically the applicability of CBIC Circular No. 199/11/2023-GST and Circular No. 210/4/2024-GST in conjunction with Rule 28—renders the order vulnerable on the ground of non-consideration of contentions. This constitutes a violation of the principles of administrative law (reasoned decision-making).
Matter Remanded: The matter is remitted to the respondent (Assessing Officer). The respondent is directed to consider all the contentions raised by the assessee in the reply and pass a fresh order on merits and in accordance with the law.
The court explicitly stated that it has not gone into the merits of whether GST is ultimately leviable, leaving that determination to the Assessing Officer.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Heard both sides.
2. The writ petitioner furnished corporate guarantee in favour of a related party, namely, M/s. Shri Amman Steel and Allied Industries Private Limited.
3.The specific stand of the writ petitioner is that they did not receive any consideration for furnishing such corporate guarantee. However, the assessing officer held that supply of such service of corporate guarantee by the petitioner to their related entity attracts the levy of GST and tax was levied at 1% of the corporate guarantee amount. Challenging the said order, this writ petition has been filed.
4. It is true that the respondent had issued show cause notice to the writ petitioner before passing the impugned order.
5. The writ petitioner submitted their reply. In their reply, the petitioner placed reliance on 2 circulars i.e., Circular No.199/11/2023-GST dated 17.07.2023 and Circular No.210/4/2024-GST dated 26.06.2024. Rule 28 of CGST Rules, 2017 reads as follows:
“28.Value of supply of goods or services or both between distinct or related persons, other than through an agent.
(1) The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:
Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.
Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.
[(2) Notwithstanding anything contained in sub-rule (1), the value of supply of services by a supplier to a recipient who is a related person [located in India], by way of providing corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one per cent of the amount of such guarantee offered [per annum], or the actual consideration, whichever is higher.]
[Provided that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the value of said supply of services.”
Circular No.199/11/2023-GST dated 17.07.2023 reads as follows:
CIRCULAR NO. 210/4/2024-GST [F. NO. MC- 20001/4/2024-GSTI, DATED 26-6-2024
6. The assessee / writ petitioner herein had contended that since the recipient is eligible for full ITC and the writ petitioner did not issue any invoice, and value of transaction has been taken as zero, the aforesaid circulars are applicable to the transactions in question. However, the assessing officer did not consider the applicability of these 2 circulars at all. It is a well settled principle of administrative law that when a defense raised by the noticee is not considered in the final order, the order is vulnerable on that ground. On the ground of non-consideration of the contentions raised by the assessee, the impugned order is set aside. The matter is remitted to the respondent. The respondent is directed to consider all the contentions raised by the assessee in the reply and pass order afresh on merits and in accordance with law. I have not gone into the merits of the matter.
7. This Writ Petition is allowed on these terms. No costs. Consequently, connected miscellaneous petitions are closed.