Case Law

GST on Corporate Guarantees: Gujarat HC Upholds Rule 28(2), Bars Retrospective Levy Before 26 Oct 2023

Published 19 Aug 2026· Updated 25 Aug 2026· 5 min read

Executive Summary

The Gujarat High Court has upheld the constitutional validity of Rule 28(2) of the CGST Rules — the provision governing GST valuation of corporate guarantees furnished between related parties — while quashing the department’s attempt to apply it retrospectively to guarantees that were issued, and continued in force, before the Rule came into existence on 26 October 2023, including some guarantees dating back to as early as 2012.

Verification note: this account is built from independent multi-source secondary reporting (Taxscan, Business Standard, TaxO.online, JurisHour — all listed below) plus Finoscape’s own internal research log entry dated 19 August 2026. No specific case caption or party name could be located or confirmed this session (WebFetch, needed to pull the primary order, was unavailable). This is reported as a regulatory/case-law development by its holding, not as a fully-cited case — recommend confirming the case name and citation before syndicating beyond finoscape.com, and before relying on this for a specific client matter.

Background

Rule 28(2) of the CGST Rules governs how GST is valued on a corporate guarantee furnished by one related party (typically a parent/promoter) on behalf of another (typically a subsidiary/group company) to a bank or financial institution. The Rule did not exist at all until it was inserted with effect from 26 October 2023 — before that date, no specific valuation rule for related-party corporate guarantees existed under the CGST Rules. Tax authorities in multiple states have since sought to apply Rule 28(2)’s valuation basis to guarantees that were issued — and remained continuously in force — well before the Rule came into existence, in some instances reaching back to guarantees executed as early as 2012.

The Holding, as Reported

Per the corroborating reports reviewed this session, the Gujarat High Court has (a) upheld Rule 28(2) as constitutionally valid, rejecting a challenge to the Rule itself, while (b) holding that the Revenue cannot apply Rule 28(2)’s valuation basis retrospectively to tax corporate guarantees for the period before the Rule came into force — meaning guarantees issued and continuing from before 26 October 2023 cannot be taxed under this Rule for the pre-Rule period. Some reports additionally describe the Court examining (and, per at least one outlet, restricting) a specific valuation formula within the Rule; that specific sub-point is noted here as reported, not independently confirmed against the primary order text this session.

Why It Matters

Corporate guarantees between group/related entities are a routine feature of Indian corporate financing structures, and retrospective GST demands on long-standing guarantees have been a significant, high-value exposure for corporate groups since Rule 28(2) was introduced. This development gives practitioners a basis to resist retrospective demands on guarantees that predate 26 October 2023, while confirming that guarantees issued (or renewed) after that date remain squarely within Rule 28(2)’s valuation regime.

Key Takeaways

Rule 28(2) of the CGST Rules did not exist before 26 October 2023 — there was no specific related-party corporate-guarantee valuation rule in force before that date.
The Gujarat High Court has upheld Rule 28(2)’s constitutional validity going forward.
Retrospective application of Rule 28(2) to guarantees issued and continuing from before 26 October 2023 has been held impermissible, per this development.
Corporate groups with long-standing guarantees (potentially dating back a decade or more) should review any GST demand that reaches back before 26 October 2023 against this development.
The exact scope of any additional finding on the Rule’s specific valuation formula is not independently confirmed this session — treat that narrower point cautiously pending primary-source confirmation.

Practical Implications

Corporate groups and their advisors should inventory all outstanding corporate guarantees between related parties and flag any GST demand, show cause notice, or assessment that seeks to value guarantees for a period before 26 October 2023 — this development supports resisting the retrospective portion of any such demand. For guarantees issued or renewed after 26 October 2023, Rule 28(2)’s valuation basis continues to apply and should be complied with prospectively. Given the case citation itself is not yet confirmed, firms should treat this as a developing story to be verified against the primary order before it is relied upon in a specific dispute.

Action Checklist

Identify all related-party corporate guarantees currently in force, noting the date each was originally issued.
For any GST demand valuing a guarantee for a period before 26 October 2023, flag this development as a potential ground of challenge — pending confirmation of the primary order.
Continue applying Rule 28(2)’s valuation basis prospectively for guarantees issued or renewed after 26 October 2023.
Track this story for the case citation and confirm the primary order before citing it in a specific client matter or filing.

Relevant Sections / Rules

Rule 28(2), CGST Rules, 2017 (valuation of supply of services by a supplier to a related recipient, specifically corporate guarantees between related parties; inserted with effect from 26 October 2023)
Gujarat High Court — case name/citation not independently confirmed this session; sourced from: Taxscan, Business Standard, TaxO.online, JurisHour.

FAQs

Q: Does this mean corporate guarantees are no longer subject to GST?
A: No — Rule 28(2)’s valuation basis has been upheld as constitutionally valid and continues to apply to guarantees issued or renewed from 26 October 2023 onward. What has reportedly been restricted is applying that valuation basis retrospectively to guarantees predating the Rule.

Q: Our group has a guarantee originally issued in 2012 that is still in force — does this development help?
A: Potentially, for GST exposure relating to the period before 26 October 2023 — but confirm the primary order and its precise scope before relying on it, since the case citation is not yet independently confirmed.

Q: Is this Gujarat High Court ruling binding outside Gujarat?
A: A High Court ruling is directly binding within its own jurisdiction and persuasive elsewhere; practitioners outside Gujarat should track whether other High Courts or the Supreme Court address the same retrospective-application question.

Internal Links

Practical Compliance Guide: GST Valuation of Corporate Guarantees Under Rule 28(2) — /practical-compliance-guide-rule-28-2-corporate-guarantee-valuation/ (Article 4, this cycle)

Practical Compliance Guide: GST Valuation of Corporate Guarantees Under Rule 28(2) (Article 4, this cycle)

Author & Disclaimer

Prepared by Finoscape Editorial Team — contact@finoscape.com. This article is for general informational purposes and does not constitute legal or tax advice. The case caption/citation was not independently confirmed this cycle due to a temporary research-tooling outage; readers should independently verify the primary order before relying on this analysis for a specific matter.