Punjab and Haryana High Court: In a writ petition filed by petitioner challenging the constitutional validity of Rule 28(2) of the Central Goods and Services Rules, 2017 (‘CGST Rules’), Rule 28(2) of the Haryana Goods and Service Tax Rules, 2017 (‘HGST Rules’), and circular dated 27-10-2023 (‘impugned circular’) issued by Respondent 3, the Division Bench of Sanjeev Prakash Sharma and Sukhvinder Kaur, JJ., stayed the effect and operation of the impugned circular dated 27-10-2023 to the extent that it clarified that the provision of corporate guarantee between related persons, even when made without any consideration, was to be treated as a supply of service between related parties as per Schedule I of Central Goods and Services Rules, 2017 (‘CGST Act’). The Court further stated that the appellate authority should be free to decide the petitioner’s case without being influenced by the clarification.
Petitioner filed the writ petition challenging the constitutional validity of Rule 28(2) of the CGST Rules, wherein in exercise of powers under Section 15(4) of the CGST Act, the value of supply of services of corporate guarantee as provided by a supplier to a recipient, was deemed to be one percent of the amount of such guarantee offered, or the actual consideration, whichever was higher. Petitioner also challenged the validity of Rule 28(2) of the Haryana Goods and Service Tax Rules, 2017 (‘HGST Rules’) on similar grounds.
Petitioner challenged these impugned rules on the ground that the said provision created an arbitrary and illegal discrimination related to valuation of supply of services between related persons which was governed by Rule 28(1) of the CGST Rules and HGST Rules and supply of services of corporate guarantee by assessors like petitioner, wherein a deeming fiction was created for taxing such supplies at an arbitrary value, which was confiscatory in nature. Petitioner contended that such discrimination between petitioner and other assesses who were supplying any other goods/service to related persons, being arbitrary and without any rational nexus, was violative of Article 14 and Article 19(1)(g) of the Constitution.
Petitioner also stated that the impugned rules were disproportionate in nature, as it created a deeming fiction to levy tax at the higher of the two values, one of which was one percent of the amount of the guarantee itself, which failed to bear any nexus with the taxable event. Thus, it was disproportionate, unreasonable, confiscatory in nature. Petitioner challenged the actions of Respondent 3 in issuing a circular dated 27-10-2023, wherein it was clarified that the corporate guarantees provided by a company to a bank or financial institutions providing credit facilities to other company, where both companies were related, even when made without consideration was to be treated as a supply of service between related parties as per Schedule 1 of the CGST Act.
Petitioner challenged the actions of Respondent 3 in issuing the impugned circular as being wholly without jurisdiction. Petitioner contended that the actions of Respondent 3, being nothing short of usurpation of power, with an intent to tax all such activities of provision of corporate guarantee, irrespective of whether the same qualified as a supply of service or not, rendered the impugned circular being without jurisdiction, arbitrary, illegal and without any authority of law, ultra vires Section 168 of the CGST Act and thereby violative of Article 14 read with Article 265 of the Constitution.
Petitioner also challenged the impugned circular as ultra vires Rule 28(2) of the CGST Rules, as impugned circular proceeded to state that Rule 28(2) of the CGST Rules should be applicable, even when the corporate guarantee was provided without any consideration. This was contravention to Rule 28(2) of the CGST Rules, as there was some consideration charged for the provision of corporate guarantee, and such consideration was meted against one percent of the value of corporate guarantee, whichever was higher. Petitioner also challenged Section 15(4) of the CGST Act and Haryana Goods and Service Tax Act, 2017, which granted unbridled and unguided power to Respondents 1 and 2 to make rules for determining the valuation of supplies where the supplier and recipient were related, without providing any guidelines, thereby being arbitrary and violation of Article 14 of the Constitution.
The Court stayed the effect and operation of the impugned circular dated 27-10-2023 to the extent it clarified that the provision of corporate guarantee between related persons, even when made without any consideration, was to be treated as a supply of service between related parties as per Schedule I of CGST Act. The Court further stated that the appellate authority should be free to decide the petitioner’s case without being influenced by the clarification.
[Acme Cleantech Solutions (P) Ltd. v. Union of India, 2024 SCC OnLine P&H 1010, Order dated 03-05-2024]
Advocates who appeared in this case :
For the Petitioner: Sujit Ghosh, Sr. Advocate with Abhinav Sood, Advocate, Mannat Waraich, Advocate, Anshika Agarwal, Advocate and Anmol Gupta, Advocate.
For the Respondents —Rishabh Kapoor, Sr. Standing Counsel and RKS, Brar, Addl. A.G. Punjab.
