The Authority for Advance Ruling, Rajasthan in its order dated 258.06.2024 in RAJ/AAR/2024-25/10, examined the time of supply and the correct manner of payment of GST in case where corporate guarantee has been given by a foreign related company to the banks and financial institutions in respect of loans taken by the India company.
The loans of the Applicant (Indian company), in this case were guaranteed by its related foreign company. The guarantee is valid from the effective date of Deed of Guarantee and the final settlement date. The Applicant relied upon Section 2(33) of the CGST Act r.w. Section129 of the Indian Contract Act, 1872 and the judgment of Hasan Ali vs. Waliullah AIR 1930 All 730, to argue that “supply” occurs only once when the deed of guarantee is entered into and since there is no actual payment nor periodic payment by the applicant, there is no continuous supply and the Applicant is only required to make the payment only once. The Applicant drew parallels with other sectors like insurance and transfer of know-how. The payment of 1% GST has to be paid either at once or as an average over a period of time with the total GST never increasing beyond 1% of the guaranteed value.
The Ld. AAR relied upon 2nd proviso to Section 13(3) and held that the time of supply of service would be the date when the transaction is entered in the books of accounts. In respect of valuation, it was held that if the contract is executed prior to 26.10.2023, GST will be payable as per Rule 28(1) of CGST Rules. But if the contract is executed after 26.10.2023, GST will be payable as per Rule 28(2), under RCM on 1% of the deemed value of loan.
W&B Comments: The ruling of the AAR is in accordance with clarification at Sr. No. 1 of Circular No. 225/19/2024-GST dated 11.07.2024 issued by the CBIC.