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CA Final · Indirect Tax Laws · Value of Supply

Anand Steel Ltd gave a corporate guarantee to Bank of Deccan for a Rs 5 crore loan taken by its related subsidiary, Anand Fabrication Pvt Ltd, located in India. The guarantee is for a period of 3 years and Anand Steel charges Rs 2,00,000 per annum as actual consideration. The subsidiary is not eligible for full input tax credit. What is the value of supply of the guarantee service for one year under rule 28(2)?

The value is Rs 5,00,000 per annum. For a corporate guarantee to a related recipient in India, rule 28(2) takes one percent of the guarantee amount per annum or the actual consideration, whichever is higher, and one percent of Rs 5 crore exceeds Rs 2,00,000.

  1. ARs 2,00,000
  2. BRs 5,00,000Correct
  3. CRs 15,00,000
  4. DRs 50,00,000

Explanation

Rule 28(2) deems the value to be 1% of the guarantee amount per annum or the actual consideration, whichever is higher. 1% of Rs 5 crore = Rs 5,00,000 per annum, which is higher than Rs 2,00,000. Rs 15,00,000 wrongly multiplies by 3 years, and the full-ITC proviso does not apply as the recipient is not eligible for full ITC.

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