In a significant ruling, the Madras High Court has set aside a GST demand levied on Amman Try Trading Company Private Limited, marking a pivotal moment in the interpretation of GST implications concerning corporate guarantees. The court found that the tax department had failed to consider vital circulars issued by the CBIC, which the taxpayer had relied upon during the assessment process.
Key Highlights of the Judgment
Justice G R Swaminathan presided over the case and emphasized that any assessment order is rendered invalid if the tax department overlooks the defenses presented by the taxpayer. He stated, “When a defense raised by the noticee is not considered in the final order, the order is vulnerable on that ground.”
Case Background
Amman Try Trading Company, based in Tiruchirappalli, furnished a corporate guarantee for a related party. The State Tax Officer interpreted this act as a taxable service under GST, imposing a tax at a rate of one percent on the corporate guarantee amount. Consequently, an assessment order (GST DRC-07) was issued against the company on April 28, 2025.
In response to the show cause notice, the company clarified it did not dispute the applicability of GST to corporate guarantees but contested the valuation approach taken by the tax officer. The company referenced CBIC Circular No.199/11/2023-GST and Circular No.210/4/2024-GST, asserting that since no consideration was received for the guarantee, the service’s value should be deemed nil, resulting in no invoice issuance.
Court’s Findings
The High Court scrutinized the tax officer’s final assessment order and noted that, while a show cause notice was issued, the order failed to address the specific CBIC circulars cited by the taxpayer. Recognizing this oversight, the court determined that the taxpayer’s defenses were not adequately considered.
Consequently, the Madras High Court set aside the assessment order, mandating a reconsideration of the matter. The court instructed the tax officer to thoroughly evaluate all arguments presented by the petitioner and issue a new, detailed assessment order compliant with legal standards.
Implications of the Ruling
This judgment underscores the importance of due consideration in tax assessments, particularly concerning the treatment of corporate guarantees under GST. Taxpayers must ensure that their defenses are thoroughly evaluated in assessment processes, as ignored arguments can lead to overturning of unfavorable decisions by the courts.
This ruling serves as a crucial precedent for businesses engaging in similar transactions, highlighting the necessity for the tax department to meticulously assess all relevant circulars and defenses to uphold the integrity of the tax assessment process.