Synopsis

The petitioner, a construction infrastructure company, had executed corporate guarantees in favour of State Bank of India and Bank of Maharashtra to secure term loans advanced to its subsidiary companies. The corporate guarantee deeds explicitly declared that the guarantor had not received and shall not receive any consideration, fee, commission, or security from the borrower. The respondents issued circulars declaring that corporate guarantee would be treated as a taxable supply of service even when made without consideration, and initiated proceedings demanding GST. The Bombay High Court held that corporate guarantee executed without consideration does not constitute a taxable supply of service, quashed the show cause notice and summons, but upheld the validity of the amended Rule 28(2) as not being ultra vires.

Court: High Court of Judicature at Bombay, Nagpur Bench

Coram: Hon'ble Mrs. Justice Urmila Joshi Phalke and Hon'ble Mrs. Justice Nivedita P Mehta (Division Bench)

Date of Judgment: 6th May 2026

Citation: Writ Petition No. 2087 of 2025 (unreported)

Core Law: Central Goods and Services Tax Act, 2017 – Sections 7, 9, 2(31), 2(102), 2(108), Schedule III; Central Goods and Services Tax Rules, 2017 – Rule 28; Indian Contract Act, 1872 – Section 126

1. Heading of the judgment

High court of judicature at bombay nagpur bench

Writ petition no. 2087 of 2025

M/s. D p jain & co. infrastructure private limited, through its general manager (accounts) mr. sanjay bole (petitioner) vs. Union of india, through the secretary, ministry of finance department of revenue, new delhi and others (respondents)

Coram: hon'ble mrs. justice urmila joshi phalke and hon'ble mrs. justice nivedita p mehta

Reserved on: 24th april, 2026; pronounced on: 6th may, 2026

2. Legal framework

Major laws and provisions involved:

Central goods and services tax act, 2017 – section 7 (definition of supply), section 9 (levy of gst), section 2(31) (definition of consideration), section 2(52) (definition of goods), section 2(102) (definition of services), section 2(108) (definition of taxable supply), section 168 (power to issue circulars), schedule iii (activities treated neither as supply of goods nor services)

Central goods and services tax rules, 2017 – rule 28 (valuation of supply between related persons)

Indian contract act, 1872 – section 126 (contract of guarantee)

Subject matter of the judgment:

Whether providing a corporate guarantee to a bank or financial institution on behalf of a subsidiary company, without receiving any consideration, constitutes a taxable supply of service under the CGST Act, 2017. Whether the impugned circulars and amended Rule 28(2) declaring such activity as taxable service are valid or ultra vires the parent Act.

Key legal principles established:

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