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CA Final · Indirect Tax Laws · Value of Supply

Bharat Infra Ltd, Mumbai, gave a corporate guarantee of Rs 50 crore to a bank for a loan taken by its subsidiary Bharat Roads Pvt Ltd, located in India, for the whole year. No consideration was charged by Bharat Infra. Bharat Roads is not eligible for full input tax credit. Which statement about the value of this supply of services for the year is correct under rule 28?

The value is Rs 50 lakh. For a corporate guarantee to a related recipient located in India, rule 28(2) deems value at one per cent of the guarantee per annum or actual consideration, whichever is higher. The invoice-value proviso does not help because the recipient lacks full input tax credit.

  1. AValue is Rs 50 lakh, being 1% of the guarantee amount per annumCorrect
  2. BValue is Rs 5 lakh, being 0.1% of the guarantee
  3. CValue is the invoice value, deemed to be the value of supply
  4. DValue is nil as no consideration was charged

Explanation

Rule 28(2) deems the value to be one per cent of the guarantee amount per annum or actual consideration, whichever is higher. 1% of Rs 50 crore = Rs 50 lakh; actual consideration is nil. The deemed invoice-value proviso applies only where the recipient is eligible for full credit, which is not the case here.

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