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

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

Posted at 04:27h in GST, News by
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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:

  • 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.

After:

  • The value of supply of services by a supplier to a recipient who is a related person located in India, 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 per annum, or the actual consideration, whichever is higher.
  • Provided that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the value of said supply of services.

Effect of the Notification:

  • The amendment clarifies that if the recipient who is a related person is located outside India, the said rule would not be applicable as the said supply will be classifiable as export of services.
  • If the recipient, being a related person, is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. This means the supplier of services can decide the value, and it will be considered as the open market value.
  • If the recipient, being a related person, is not eligible for full input tax credit, the value of the corporate guarantee provided to any banking company or financial institution on behalf of the related person is to be deemed the higher of the following amounts:
  • 1% of the amount of such guarantee offered per annum, or
  • Actual consideration

The Notification can be accessed at:
https://www.nyca.in/wp-content/uploads/2024/07/Notification_No._12_2024_–_Central_Tax_10.7.2024.pdf

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