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P&H HC Stays CBIC Circular on Corporate Guarantees, Citing Jurisdiction Overreach

Introduction

The Hon’ble Punjab and Haryana High Court (‘HC’) issued a significant order in the case of Acme Cleantech Solutions Pvt. Ltd v. Union of India[i], staying the operation of the GST circular pertaining to the taxability of ‘corporate guarantees (‘CGs’) by a person on behalf of another related person or holding company for sanctioning of credit facilities to its subsidiary company’, as it infringed upon the adjudicatory powers of the assessing authority as well as appellate authority.

Facts

  • M/s Acme Cleantech Solutions Pvt. Ltd. (‘Petitioner’) filed a writ petition before the HC, challenging the Central Board of Indirect Taxes and Customs (‘CBIC’) Circular dt. 27.10.2023[ii] (‘Circular’), through which the CBIC clarified the issue of the taxability of CGs.

  • The Petitioner contended that the Circular infringed upon the powers of adjudication of the assessing and appellate authorities by clarifying essentially adjudicative provisions. Aggrieved by such overreach, the Petitioner approached the HC.

Held

The HC stayed the operation of the aforementioned Circular and directed the appellate authority to proceed with the adjudication of the Petitioner’s case without being prejudiced by the Circular issued by CBIC. Further, while noting CBIC’s jurisdictional outreach, the HC observed that the Circular directly called into question the powers of the appellate authority, negating the purpose of filing an appeal.

Our Analysis

The stay order issued by the HC is a significant affirmation of the importance of maintaining clear jurisdictional boundaries within tax governance. By addressing the CBIC’s overreach into the adjudicatory powers of the appellate authority, the HC not only safeguards the procedural rights of the assessee but also upholds the integrity of judicial review mechanisms. This case highlights the complexities involved in the taxability of CGs—a matter with substantial economic implications that can affect the financial fluidity and credit structuring within corporate groups. Given the potential for such interpretations to impact economic behaviour and corporate planning, it is crucial that jurisdictional clarity is maintained and that regulatory bodies do not encroach upon the rights of taxpayers without proper judicial oversight. This judgment may prompt a more cautious approach by regulatory authorities in the future, ensuring that their directives do not exceed statutory limitations.




End Notes

[i] [2024] 162 taxmann.com 151 (Punjab & Haryana)[03-05-2024]

[ii] Circular No. 204/16/2023-GST, dated 27.10.2023







Authored by Anshi Bhatia, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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