A corporate guarantee is a contractual arrangement whereby one entity undertakes to assume responsibility for the debt/obligations of another entity upon default. Such guarantees are commonly issued within corporate groups, typically by parent companies in favour of subsidiaries or related entities, to enable such entities to obtain financing from financial institutions.
Under both the erstwhile Service Tax regime and the GST regime, the Department has consistently taken the position that the issuance of a corporate guarantee constitutes a service rendered by the guarantor and is therefore exigible to tax.
In the erstwhile regime, the Hon’ble Supreme Court, in Commissioner of CGST and Central Excise v. M/s Edelweiss Financial Services Ltd., 2023 (73) GSTL 4 (SC), held that where corporate guarantees are provided to banks or financial institutions for extending loans to a subsidiary or related entity, without any consideration, such transactions are not taxable. The Court held that
