Concessional GST Rate for Merchant Exporters Requires Direct Supply to Registered Recipient or Designated Warehouse

The petitioner manufactures HDPE drums (HSN 3923).

A merchant exporter (registered recipient) placed purchase orders with the petitioner for these drums to export ethyl alcohol.

Per the exporter’s instructions, the petitioner delivered the drums to a third-party chemical manufacturer’s premises, where the alcohol was packed before being exported.

The petitioner sought a concessional GST rate of 0.1% under Notification No. 41/2017-IT (Rate).

Both the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) denied the benefit, holding that the supply did not move "directly" to the registered recipient or a registered warehouse as required by the Notification.

The petitioner challenged these orders via a writ petition.

Whether, in the facts and circumstances of the case, the petitioner is entitled to the benefit of the concessional rate of tax at 0.1% under Notification No. 41/2017-I.T. (Rate) dated 23.10.2017?

The Court applied Section 6(1) of the IGST Act, 2017, and conditions (v), (vi), and (vii) of Notification No. 41/2017-IT (Rate), which require that goods must move from the supplier "directly" to a port/ICD or a "registered warehouse".

It relied on the Constitution Bench decision in *Commissioner of Customs v. Dilip Kumar and Company*, establishing that exemption notifications must be interpreted strictly and any ambiguity must be resolved in favor of the Revenue.

It further applied *Krishi Upaj Mandi Samiti v. CCE*, holding that courts cannot ignore prescribed conditions or subtract/add words to a statutory exemption.

The Court observed that the Notification contemplates a strict bilateral chain between a "registered supplier" and a "registered recipient".

Under Condition (vi), the goods must move directly from the supplier to the port or a registered warehouse.

In this case, the petitioner delivered the goods to a third-party chemical manufacturer.

The Court rejected the petitioner’s argument for a "purposive interpretation," noting that the language of the Notification is clear and unambiguous.

Since the chemical manufacturer is neither the merchant exporter nor a "registered warehouse" as defined under the scheme, the supply to such a third party constitutes a breach of the mandatory conditions.

The Court emphasized that literal compliance is mandatory for tax concessions.

It held that the petitioner is not entitled to the concessional rate of 0.1% because the goods were supply-delivered to a third party (the chemical manufacturer) rather than moving directly to the registered recipient or a registered warehouse as strictly mandated by Notification No. 41/2017-I.T. (Rate).

The findings of the AAR and AAAR were upheld.