“However, the levy is permissible, if the period crosses the date of introduction of Rule 28(2), as the taxable event occurs every years,” the bench said.

A division bench of Gujarat High Court has ruled that no GST is to be levied on corporate guarantee furnished prior to October 26, 2023. However, it has held the constitutional validity of provisions related with valuation of levying GST on corporate guarantee.

In simple terms, GST Department can impose levy on corporate guarantee furnished after October 26, 2023.

 “The levy of GST on the corporate guarantee furnished prior 26th October, 2023 under Rule 28(2) is declared violative of Article 14 and 19(1)(g) of the Constitution of India, however, levy gets attracted from this date in case the guarantees continue,” a division bench of Justices A S Supehia and Vaibhavi D Nanavati said in a ruling while disposing petitions by Torrent Power and 12 others.

It emphasised that he retroactive effect impinges the fundamental rights under the constitution, since the levy is unduly harsh and unfair, as taxpayers arrange their financial affairs based on the prevailing law. It imposes an unexpected financial burden without any fault on the assessee, disrupts settled legal and financial implication, more particularly when the corporate guarantee, may stretch for long period of time.

Thus, “the imposition of levy of GST on 1 per cent valuation per annum to the corporate guarantee prior to the introduction of Rule 28(2) of the CGST Rules w.e.f October 26, 2023 is harsh and unfair to the tax payers,” it said. The collection of tax for the period prior to introduction of Rule 28(2) will also be hit by the doctrine of unjust enrichment, since the revenue had no legal basis or authority to levy GST on corporate guarantee, which were executed prior to the date of introduction.

“However, the levy is permissible, if the period crosses the date of introduction of Rule 28(2), as the taxable event occurs every years,” the bench said.

According to Ritesh Kanodia, Partner, Aurtus Legal, the real controversy was never about the percentage prescribed under Rule 28(2), but whether a parent company’s decision to furnish a guarantee in support of its subsidiary constitutes a commercial service at all or is merely an incident of shareholding aimed at protecting and enhancing its investment.

“In that sense, the judgment resolves important questions on valuation and retrospectivity but stops short of addressing the more fundamental issue of taxability. The debate on whether a corporate guarantee represents a taxable supply or a shareholder function therefore remains unresolved and is likely to be tested before the Supreme Court,” he said.

Sudipta Bhattacharjee, Partner, Khaitan & Co highlighted that the Court has also ‘read down’ the expression “whichever is higher” in the GST valuation provision for corporate guarantees [CGST Rule 28(2)] - simply put, if parties in a corporate guarantee transaction have agreed for a consideration lower than 1 per cent of the guarantee amount, the same should be accepted as taxable base for GST. As a result, in many cases taxpayers may become eligible for refund of GST amounts already deposited by them.  “This is a very significant development and would have repercussions on pending matters on similar issues across various other High Courts in India,” he said

Published on August 14, 2026