Mumbai: The Punjab and Haryana High Court has granted interim relief in a case challenging the levy of goods & services tax (GST) on corporate guarantees, staying coercive action against the petitioner.
Panacea Biotec had moved the high court seeking relief. The petitioner was represented by Abhishek A Rastogi, advocate, along with Akshay Goyal, while the Union of India was represented by Ajay Kalra, senior standing counsel.
The dispute before the court centres on whether GST can be levied on corporate guarantees issued prior to the amendment to Rule 28(2) of the CGST Rules, which was introduced pursuant to recommendations of the GST Council and provides for a deemed valuation mechanism capped at 1% of the guaranteed amount.
Appearing for the petitioner, Rastogi argued that the amendment to Rule 28(2) is purely prospective and cannot be applied retrospectively to corporate guarantees issued before its enforcement. He submitted that any attempt to levy GST for earlier periods would be beyond legislative competence and executive authority.
He further pointed out that in the present case, tax authorities had sought to value the alleged service at 2.5%, significantly higher than the 1% cap later proposed by the GST Council. Such an approach, he contended, was arbitrary and unreasonable - both because it sought to tax transactions involving no consideration and because it imposed a valuation higher than what the GST framework now recognises as appropriate.
The court also took note of a similar matter pending before filed by Acme Cleantech Solutions - in which notice had already been issued and interim relief granted.
Issuing notice of motion, the bench directed that no coercive action shall be taken against Panacea Biotec in the event a final assessment order is passed or a demand is raised. The court adjourned the matter to May 5, granting time to the Union of India to file its say.
Tax experts say the order provides much-needed directional clarity on a contentious issue that has imposed substantial compliance and financial burdens on industry, particularly in cases involving related-party transactions where corporate guarantees are extended without consideration.
Amit Maheshwari, managing partner at AKM Global, said the interim stay offers immediate relief to multinational groups and related entities that routinely extend corporate guarantees to affiliates. "By restraining coercive action, the court has recognised serious legal concerns surrounding the retrospective application of GST, especially for guarantees issued prior to the amendment of Rule 28(2), when no valuation framework existed," he said.
Maheshwari added that the introduction of a deemed valuation mechanism capped at 1% cannot automatically justify tax demands for past transactions. "From a broader perspective, the case underscores the need for certainty and consistency in GST valuation rules, particularly for intra-group arrangements that are more in the nature of shareholder support than a commercial supply," he said.
Panacea Biotec had moved the high court seeking relief. The petitioner was represented by Abhishek A Rastogi, advocate, along with Akshay Goyal, while the Union of India was represented by Ajay Kalra, senior standing counsel.
The dispute before the court centres on whether GST can be levied on corporate guarantees issued prior to the amendment to Rule 28(2) of the CGST Rules, which was introduced pursuant to recommendations of the GST Council and provides for a deemed valuation mechanism capped at 1% of the guaranteed amount.
Appearing for the petitioner, Rastogi argued that the amendment to Rule 28(2) is purely prospective and cannot be applied retrospectively to corporate guarantees issued before its enforcement. He submitted that any attempt to levy GST for earlier periods would be beyond legislative competence and executive authority.
He further pointed out that in the present case, tax authorities had sought to value the alleged service at 2.5%, significantly higher than the 1% cap later proposed by the GST Council. Such an approach, he contended, was arbitrary and unreasonable - both because it sought to tax transactions involving no consideration and because it imposed a valuation higher than what the GST framework now recognises as appropriate.
The court also took note of a similar matter pending before filed by Acme Cleantech Solutions - in which notice had already been issued and interim relief granted.
Issuing notice of motion, the bench directed that no coercive action shall be taken against Panacea Biotec in the event a final assessment order is passed or a demand is raised. The court adjourned the matter to May 5, granting time to the Union of India to file its say.
Tax experts say the order provides much-needed directional clarity on a contentious issue that has imposed substantial compliance and financial burdens on industry, particularly in cases involving related-party transactions where corporate guarantees are extended without consideration.
Amit Maheshwari, managing partner at AKM Global, said the interim stay offers immediate relief to multinational groups and related entities that routinely extend corporate guarantees to affiliates. "By restraining coercive action, the court has recognised serious legal concerns surrounding the retrospective application of GST, especially for guarantees issued prior to the amendment of Rule 28(2), when no valuation framework existed," he said.
Maheshwari added that the introduction of a deemed valuation mechanism capped at 1% cannot automatically justify tax demands for past transactions. "From a broader perspective, the case underscores the need for certainty and consistency in GST valuation rules, particularly for intra-group arrangements that are more in the nature of shareholder support than a commercial supply," he said.