The change in norms for the appointment of members of the in GST Appellate Tribunal are also expected to be taken up
The 52nd meeting of the GST Council this Saturday is expected to deliberate upon two contentious issues: the taxability of corporate guarantee and progress on the implementation of a clarificatory law related to the uniform 28 per cent GST on online money gaming, casino and horse racing.
A host of other items, including the rate for millet-based products and the change in norms for the appointment of members of the GST Appellate Tribunal, are also expected to be taken up.
GST on Corporate Guarantee
A number of companies provide guarantees for loans taken by their subsidiaries in order to protect investment. A number of times, directors of the company provide the guarantee for loans in their personal capacity. In the service tax regime, if there was no consideration for corporate guarantee, it was not taxable. Even the Supreme Court, in a recent ruling, held that the issuance of a corporate guarantee in favour of a subsidiary company would not attract service tax in the absence of a consideration.
However, under Schedule I of the Central Goods and Services Tax (CGST) Act, 2017, supply of goods or services among related persons in the course of or in furtherance of business without consideration qualifies as “supply” and hence will attract GST. Section 15(5) of the CGST Act entrusts the government with the power to notify the value of certain supplies. There is a need to provide clarity on this, and the Council is expected to take a call.
Divakar Vijayasarathy, founder and CEO of DVS Advisors, said that a corporate guarantee is provided for the maximisation of gains for the recipient entity and hence can be treated as a service. Another view is that there is no service activity undertaken, and the company issues the guarantee in its capacity as a shareholder to protect its investment in securities. “To resolve the ambiguity (service or shareholding), one hopes that the government either completely exempts the provision of corporate guarantee by related parties or fixes a value,” he said.
Shashi Mathews, partner with INDUSLAW, said levying GST on the corporate guarantee may become a multifold issue and lead to the blocking of working capital for businesses. “Sectors which are not entitled to avail input tax credit or engaged in providing exempt or non-taxable supplies would have to bear the cost of such GST,” he said.
Online Money Gaming
The Council is also expected to take into consideration the fact that some States have not amended their SGST (State Goods and Services Tax) Act to roll out the implementation of 28 per cent uniform GST on online money gaming, casinos, and horse racing. The mechanisms have come into effect, and online gaming players have alleged complexity in compliance because of no amendment in law by some States beside resrospective application.
Payal Thaker, Indirect Tax Partner, BDO India, said until October 1, 2023, companies in India have been paying 18 per cent on the platform fee for games of skill, though the government’s view is that these companies should have been paying 28 per cent on the face value all along. “We will have to wait for the verdict of the Apex Court since it has recently stayed the decision of the Karnataka High Court, resulting in huge GST demand notices worth crores of rupees being issued to large online gaming players in the country,“ she said.
Source: TheHinduBusinessline