BACKGROUNDThe petitioners, who had furnished corporate guarantees for subsidiaries, challenged the levy of GST on such guarantees and questioned the validity of Rule 28(2), Section 15(4) and the related CBIC Circulars. They contended that a corporate guarantee furnished without consideration did not constitute a taxable supply and challenged the deemed valuation mechanism of 1%.The Court examined the statutory framework governing supply, related-party transactions, business, valuation and corporate guarantees, including the effect of Schedule I and the amendments to Rule 28(2). The Court also examined separate proceedings initiated under Section 74 in relation to corporate guarantees.COURT OBSERVATIONThe Court held that the GST regime differs materially from the erstwhile service-tax regime because Section 7(1)(c) read with Schedule I contains a deeming mechanism for specified supplies between related persons even without consideration. The Court therefore did not accept the proposition that the absence of consideration by itself excludes corporate guarantees from GST.The Court examined the true nature of a corporate guarantee and held that its supply ultimately benefits the subsidiary, which can therefore constitute the recipient for GST purposes. The Court also examined the statutory meaning of guarantee and distinguished it from pledge and other forms of security.On valuation, the Court examined the GST Council's deliberation and the 1% benchmark incorporated in Rule 28(2). It ultimately held that Rule 28(2) was intra vires, but the expression “whichever is higher” had to be read down.Regarding Section 74, the Court held that invocation requires a strict showing of fraud, wilful misstatement or suppression. It examined whether the statutory controversy surrounding the taxability of corporate guarantees could itself establish the necessary mala fide intent.FINAL VERDICTThe Court held Rule 28(2) of the CGST Rules intra vires, subject to reading down the expression “whichever is higher.” It further held that levy of GST on corporate guarantees furnished prior to 26.10.2023 under Rule 28(2) violated Articles 14 and 19(1)(g), although levy could apply from that date where the guarantees continued. Section 15(4) was held intra vires.The actions of the Revenue under Section 74 were quashed and set aside, with provision for refund/adjustment of excess GST deposited. The impugned Circulars were also set aside to the extent they were contrary to the Court's observations and directions.CASE REFERRED BY COURTThe Court considered a substantial number of precedents. The principal cases actually discussed in its analysis include:Union of India & Anr. v. Mohit Minerals Pvt. Ltd. — Supreme CourtDirectorate General of GST Intelligence (HQS) v. Gameskraft Technologies (P.) Ltd. — Supreme Court — 2026Commissioner of CGST & Central Excise v. Edelweiss Financial Services Ltd. — Supreme CourtMaitreya Doshi v. Anand Rathi Global Finance Ltd. — Supreme Court — 2023,Infrastructure Leasing and Financial Services Ltd. v. HDFC Bank Ltd. & Anr. — Supreme Court — 2023,Govind Saran Ganga Saran v. Commissioner of Sales Tax — Supreme Court — 1985Ashok Leyland Ltd. v. State of T.N. — Supreme Court — 2004D.P. Jain & Co. Infrastructure Pvt. Ltd. v. Union of India & Ors. — Bombay High Court — 06.05.2026.Faridabad Iron & Steel Traders Association v. Union of India — Delhi High Court.Coca Cola India Pvt. Ltd. v. Commissioner of Central Excise, Pune-III — Bombay High Court 2009.Phoenix ARC Pvt. Ltd. — Supreme Court.Uniworth Textiles Ltd. v. Commissioner of Central Excise, Raipur — Supreme Court — 2013.

BackgroundThe petitioners are partners of M/s. Maa Renuka Trading Company, Indore. Along with the firm and other noticees — 23 persons/firms in all — they were investigated for generating fake invoices and e-way bills without any actual supply of goods for F.Y. 2020-21 and 2021-22. Acting on specific intelligence, the Department carried out a search under Section 67(2), recorded statements, drew panchnamas, and issued summons.In his statement (25.11.2021), Petitioner No. 2 (Yash Goyal), when confronted with vehicle numbers and the corresponding e-way bills, admitted that the e-way bills were incorrectly generated, as the vehicles could not have covered the distances in the time reflected. He admitted that the firm (and Shree Sanwariya Trading Company, Vadodara) received invoices from Delhi-based firms through broker Shri Ankur Kanda — firms that had made no genuine purchases of bitumen and existed only to pass on ITC through paper transactions. On forensic examination of Petitioner No. 1 (Manoj Agrawal)'s phone and WhatsApp chats, he admitted transferring amounts into bank accounts as instructed by Ankur Kanda, who then returned the cash through angadia after deducting commission. A specific instance dated 13.03.2022 showed Rs. 25 lakhs deposited (Rs. 15 lakhs to M/s. Bholenath, Rs. 10 lakhs to M/s. Shri Shyam) with Rs. 23 lakhs returned in cash after commission. He further admitted sending images of currency notes as coded signals for routing cash through hawala, and shared hawala details for Indore and Mumbai.On these findings, the Order-in-Original dated 30.01.2026 imposed penalty under Sections 122(1A) and 122(3). The petitioners challenged it before the High Court, electing to invite an order on merits rather than file an appeal under Section 107. They contended that (i) no finding established their liability under Section 122(1A); (ii) the order violated natural justice by not considering their reply dated 15.05.2025; and (iii)once penalty was imposed on the firm, no separate penalty could be levied on the partners. They relied on Kranti Associates (requirement of a reasoned order) and the Bombay HC ruling in Amit Manilal Haria (retrospective applicability of Section 122(1A), in force w.e.f. 01.01.2021).Court Observations (verbatim)On the adjudicating authority's finding, quoted by the Court (Para 7.5): "Partners of M/s Maa Renuka Trading, Indore by operating and managing M/s Sanwariya Trading, Vadodara for wrongly and fraudulently availing and utilizing input tax credit have rendered themselves liable for penalty under Section 122(1A) & Section 122(3) of CGST Act' 2017."On merits (Para 22): "Thus, the findings recorded by the adjudicating authority unequivocally establish the complicity of the present petitioners in the generation of fake invoices and e-way bills without any actual supply of goods, as well as their involvement in hawala transactions… We are, therefore, not inclined to interfere with the impugned Order-in-Original merely on the grounds canvassed before us."On natural justice and alternative remedy (Para 23): "…We also do not find that the impugned order is in any sense an unreasoned order; additionally, we also do find any violation of the principles of natural justice warranting interference in the exercise of our writ jurisdiction under Article 226… The petitioners have an efficacious statutory remedy of appeal under Section 107 of the CGST Act, 2017, and all factual findings including the applicability of the provisions of Section 122(1A) of the CGST Act, 2017 retrospectively could have been examined by the appellate authority, more particularly in wake of the fact that there appears to be widespread network involving numerous transactions by various entities of defrauding the revenue, which was not the case before Bombay High Court…"Final VerdictThe writ petition was rejected and Rule discharged, with no order as to costs. The Court declined to interfere with the Order-in-Original, holding the petitioners' complicity in fake invoicing and hawala transactions to be unequivocally established, the order to be reasoned and not in breach of natural justice, and the retrospective applicability of Section 122(1A) to be a matter that could, in any event, have been tested before the appellate authority.Cases Referred by the Court1. Kranti Associates Pvt. Ltd. & Anr. vs. Sh. Masood Ahmed Khan & Ors. — Supreme Court, dated 08.09.2010, Civil Appeal No. 7472 of 2010 (arising out of SLP (Civil) No. 20428 of 2007). Cited by petitioners on the need for a reasoned order; held inapplicable as the impugned order was not unreasoned.2. Amit Manilal Haria & Ors. vs. Joint Commissioner, CGST and Central Excise & Anr. — Bombay High Court, Writ Petition No. 5001 of 2025, dated 25.02.2026. Cited by petitioners on retrospective applicability of Section 122(1A); distinguished, as no widespread fraud network was involved there.

Background.  The petitioner, engaged in the manufacture and sale of safety valves and components and registered in Gujarat, Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh, amalgamated M/s Pentair Valves and Controls India Pvt. Ltd. into itself under an NCLT order dated 14.11.2019, the entire business including all assets and liabilities being transferred to it. The transferor’s unutilised credit pertained largely to CGST brought forward from the central excise regime through FORM GST TRAN-1. Attempts to file FORM GST ITC-02 were met with an endorsement made on the statutory form itself — that the transferee and transferor company should be of the same State or Union Territory — followed by reminders in 2022 and 2024 that produced no resolution.Observations of the Court.  The Court found that the incorporation had been made in the statutory form itself without reference to any provision under which it was passed. Reasons assigned by the department must be separate and must clearly demarcate its opinion, and must not be embossed on the statutory form. The endorsement had been placed below the transferee’s GSTIN and displayed on the portal, and in the absence of clear demarcation it was difficult to trace the opinion of the officer concerned. Form ITC-02, issued under Rule 41, contains no column for recording an officer’s opinion or reasons for not accepting the form.On merits the Court referred to the Bombay High Court’s decision in Umicore Autocat India (P) Ltd. on an identical issue, delivered after a threadbare analysis of Sections 18(3), 22 and 25 read with Rule 41, and found no convincing reason to take a contrary view. It noted the department’s submission that Umicore Autocat is under challenge before the Supreme Court in S.L.P. (C) Diary No. 67126 of 2025, in which notice has been issued, and it recorded that the balance of credit had in fact been manually transferred into the petitioner’s books.Final verdict.  The writ petition was allowed and rule made absolute. The Court clarified that until a proper amendment or mechanism is provided for uploading FORM GST ITC-02, the department shall accept such forms manually and process them, and directed that the petitioner be allowed to fill up the form manually, the same to be processed within six weeks from receipt of the order.

Facts:The petitioner challenged the order dated 25.04.2025 passed by the appellate authority rejecting the appeal filed under Section 107 of the GST Act on the ground of delay. Against the original order dated 12.08.2024, the petitioner had filed a rectification application under Section 161 on 05.11.2024 which was rejected on 19.03.2025. The petitioner thereafter filed an appeal on 25.03.2025.Court Decision:The Court held that the rectification application filed under Section 161 and its disposal is a relevant factor for computing the limitation period for filing an appeal under Section 107. The limitation would start from the date of rejection of the rectification application.Since the rectification application was rejected on 19.03.2025 and the appeal was filed on 25.03.2025, the appeal was within time. The appellate authority failed to consider this aspect and erroneously rejected the appeal as time-barred. The Court therefore quashed the appellate order dated 25.04.2025 and remanded the matter to the appellate authority to decide the appeal afresh after granting opportunity of hearing.Cases Referred by Court:·         SPK and Co. v. State Tax Officer, W.P.(MD) No.27787 of 2024, Madras High Court, Order dated 22.11.2024

Background.  By NCLT order dated 10.08.2023, three entities including Alstom Rail Transportation India Pvt. Ltd. (ARTIPL) were dissolved and amalgamated into the petitioner; the certified copy was filed with the Registrar of Companies on 22.09.2023, which was the effective date under the scheme, and intimation was given to the department on 10.10.2023. On 20.10.2023 ARTIPL filed FORM GST ITC-02 transferring Rs. 192,87,53,211 out of total unutilised credit of Rs. 242,02,00,000, retaining Rs. 49,14,00,000 in its own electronic credit ledger, and then filed month-wise refund claims under Section 54(3) for that balance on account of April 2023 exports. A refund of Rs. 2,56,75,437 was sanctioned and encashed, was reviewed under Section 107(2), and was set aside in appeal on 08.01.2025. ARTIPL’s registration was cancelled only on 29.11.2024.Observations of the Court.  The Court noted that although ARTIPL stood dissolved and amalgamated from the dates set out above, it continued to be treated as a registered person under GST and was so recognised by the authorities until 29.11.2024, which reflected a flawed approach on the part of the jurisdictional officers.On amalgamation and formation of the petitioner, the only and exclusive manner of transferring the unutilised credit from the transferor’s electronic ledger was through FORM GST ITC-02, which it resorted to only in substantial part, that is about eighty per cent. The petitioner was entitled to claim the entire unutilised credit and to encash it had it been transferred by following the statute, since the petitioner itself had never exported the goods. No patent illegality was found in the appellate order. Applying the doctrine of pari delicto, the Court held that where the action of both the entities and the jurisdictional officer was pernicious to the statutory provisions, the law aids neither party, and the transferor could not seek the benefit of a refund from the fault of the officer when it was equally at fault.Final verdict.  The writ petitions failed legal scrutiny and were dismissed, rule discharged. The Court additionally directed the Revenue to issue appropriate instructions for scrupulously following the mandate of the statutory provisions while dealing with the registrations of both entities in cases of amalgamation, and for taking prompt steps within the prescribed time frame as soon as the jurisdictional officer learns of an amalgamation.