Court Remits Case Back to State Tax Officer for Fresh Evaluation, Emphasizing the Importance of Administrative Law Principles
In a significant ruling, the Madras High Court, Madurai Bench, under the adjudication of Justice G.R. Swaminathan, has set aside an impugned order levying Goods and Services Tax (GST) on a corporate guarantee provided by M/s. Amman Try Trading Company Private Limited to a related entity. The judgment, delivered on October 6, 2025, highlighted the State Tax Officer's failure to consider crucial circulars and rules under the Central Goods and Services Tax (CGST) Rules, 2017, during their assessment.
The case revolved around the imposition of GST on a corporate guarantee extended by Amman Try Trading to a related party, a transaction that the company argued did not involve any consideration. The assessing officer had previously determined that the supply of such a service attracted GST, levying a tax at 1% of the guarantee amount. In response, Amman Try Trading filed a writ petition, challenging this decision.
Central to the petitioner's argument were two circulars: Circular No.199/11/2023-GST dated July 17, 2023, and Circular No.210/4/2024-GST dated June 26, 2024. These circulars, alongside Rule 28 of the CGST Rules, 2017, were pivotal to the petitioner's contention that the value of the transaction should be considered zero, given the recipient's eligibility for full Input Tax Credit (ITC) and the absence of an issued invoice.
Justice Swaminathan emphasized the principle of administrative law that mandates consideration of defenses raised by a noticee. The court noted that the State Tax Officer neglected to evaluate the applicability of the aforementioned circulars, thereby rendering the order vulnerable to legal scrutiny. Consequently, the court quashed the order, directing the respondent to re-evaluate the case afresh, ensuring all contentions raised by the assessee are duly considered.
The ruling underscores the judiciary's role in ensuring fair administrative processes and adherence to statutory provisions. By setting aside the previous order, the court has reaffirmed the necessity for tax authorities to meticulously evaluate all relevant rules and circulars when assessing transactions, especially those involving related entities.
The High Court's decision not only provides relief to Amman Try Trading but also sets a precedent for similar cases where administrative oversight might overlook critical statutory provisions. The case has been remitted back to the State Tax Officer, with clear instructions to assess the situation anew, taking into account all arguments presented by the petitioner.
Bottom Line:
GST - Levy of GST on corporate guarantees provided by the petitioner to a related entity - Impugned order set aside due to non-consideration of contentions raised by the assessee based on circulars and rules under CGST Rules, 2017.
Statutory provision(s): Rule 28 of CGST Rules, 2017, Circular No.199/11/2023-GST, Circular No.210/4/2024-GST
