Why corporate guarantees have emerged as a new battleground in tax disputes

Before the introduction of GST in 2017, corporate guarantees between related parties were not considered taxable under the service tax regime, unless there was a direct consideration involved

In October 2024, Jindal Stainless challenged a Goods and Services Tax (GST) notice in the Delhi High Court. It was about corporate guarantees issued to related parties by its former group company, Jindal Stainless (Hisar), before their merger in March 2023.

 

The tax department argued that these guarantees — extended to banks and financial institutions — qualified as a “supply of services” under GST law, making them liable to 18 per cent tax.

 

Jindal Stainless contested the taxability of such guarantees, especially when issued without any consideration, and challenged the retrospective application of new rules and circulars. The Delhi High