CBIC Retrospectively Amends Rule 28(2) of CGST Rules for Corporate Guarantee Valuation

CBIC Retrospectively Amends Rule 28(2) of CGST Rules for Corporate Guarantee Valuation

Background:

Earlier, CBIC vide Notification No. 52/2023 – Central Tax dated October 26, 2023, notified new Sub Rule 28(2) of the CGST Rules. This rule stated that the value of supply of services by a supplier to a recipient who is a related person, by way of providing a corporate guarantee to any banking company or financial institution on behalf of the said recipient, shall be deemed to be one percent of the amount of such guarantee offered, or the actual consideration, whichever is higher.

Thereafter, in the 53rd GST Meeting of the GST Council held on June 22, 2024, in New Delhi, it was recommended to amend the valuation under Rule 28(2) of the CGST Rules retrospectively with effect from October 26, 2023. The said rule would not be applicable in the case of the export of such services and where the recipient is eligible for full input tax credit. CBIC will issue a circular to clarify various issues regarding the valuation of services of providing corporate guarantees between related parties.

Notification:

Now, the CBIC vide Notification No. 12/2024 – Central Tax dated July 10, 2024, in exercise of its powers conferred by Section 164 of the CGST Act, has retrospectively amended Rule 28(2) of the CGST Rules with effect from October 26, 2023, as follows:

Rules:

Before:

After:

Effect of the Notification:

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