GST to Apply to Personal Bank Guarantees Provided by Managing Directors: Telangana High Court

GST to Apply to Personal Bank Guarantees Provided by Managing Directors: Telangana High Court

The Telangana High Court has ruled that a Managing Director’s guarantee or security provided to a bank on behalf of the company is a taxable supply of service under the reverse charge mechanism of the Goods and Services Tax (GST).

The issue in this case was whether GST should be applied to a Managing Director’s guarantee or security provided to a bank using personal assets and guarantees. The tax authorities, including the Superintendent of Central Tax and the Additional Commissioner (Appeals-II), rejected M/s BST Steels Pvt Ltd.’s (petitioner) argument that GST was not applicable.

During the hearing, counsel for the respondent department presented Notification No. 13/2017- Central Tax (Rate) dated June 28, 2017, issued by the Government of India, Ministry of Finance (Department of Revenue), which specifies certain categories of services to be taxed under the reverse charge mechanism.

The division bench of Justices P. Sam Koshy and Laxmi Narayana Alishetty noted that the notification is clear: services provided by a director of a company or a body corporate to the same company or body corporate are taxable under the reverse charge mechanism. This means that the company is responsible for paying the tax on these services.

Based on the notification, the Court found that the Superintendent of Central Tax’s conclusions in the initial assessment and the Additional Commissioner (Appeals-II)’s order in the original case were not erroneous, arbitrary, or bad in law.

The Court, therefore, ruled that the petitioner had not presented a compelling case for interfering with the challenged order.