With reference to GST law discuss the following issues: (i) Whether the activity of providing personal guarantee by the Director of a company to the bank/financial institutions for sanctioning of credit facilities to the

Answer 4A(ii) Issue clarified by Circular No. 204/16/2023 GST dated 27.10.2023 (i) Since director and company are related persons [in terms of Explanation (a) to section 15], the activity of providing personal guarantee by the Director to the banks/ financial institutions for securing credit facilities for their companies is to be treated as a supply of service, even when made without consideration [in terms of section 7(1)(c) read with para 2 of Schedule I]. Value will be open market value (OMV) of such supply [in terms of rule 28]. However, as per the mandate provided by the RBI Guidelines in this regard, no consideration by way of commission, brokerage fees or any other form, can be paid to the director by the company, directly or indirectly, in lieu of providing personal guarantee to the bank for borrowing credit limits, except in exceptional cases. Consequently, there is no question of such supply/ transaction having any OMV. Accordingly, it is clarified that OMV of the said transaction/ supply may be treated as zero and therefore, no tax is payable on such supply of service by the director to the company. However, in exceptional cases, where remuneration is payable to the director, the taxable value of such supply of service shall be the remuneration/ consideration provided to such guarantor by the company, directly or indirectly. (ii) Where the corporate guarantee is provided to the bank/financial institutions by: a) a company for providing credit facilities to the other company, where both the companies are related, b) a holding company, for securing credit facilities for its subsidiary company [related in terms of explanation to section 15], the activity is to be treated as a supply of service between related parties even when made without any consideration [in terms of section 7(1)(c) read with para 2 of Schedule I]. In such cases, the taxable value will be determined as per the newly inserted sub-rule (2) to rule 28 as per which value in above cases will be higher of: (i) 1% of the amount of such guarantee offered per annum, or (ii) actual consideration. 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.