GSTAT Denies Paper Supplier 0.1% Export IGST Rate For Drums Delivered To Distilleries; Section 74 Stands Only On Unnotified Chandni Sale

The appellant supplied HDPE drums to M/s Transwave Exports, M/s Jeetsons Exports Pvt. Ltd. and M/s Chandni Overseas Pvt. Ltd., claiming the concessional IGST rate under Notification No. 41/2017-Integrated Tax (Rate).

The drums were delivered to distilleries rather than moved directly to a port or registered warehouse for export; the drums were used to contain ENA that was subsequently exported.

The tax authorities denied the concession and confirmed tax of ₹8,06,803, interest and an equivalent penalty under Section 74. The first appellate authority upheld that order.

On further appeal, the GST Appellate Tribunal partly modified the decision.

Notification No. 41/2017-Integrated Tax (Rate) makes the concessional rate subject to its specified conditions, including condition (vi), which requires the registered recipient to move the goods directly from the supplier’s premises to the port or to a registered warehouse for onward movement to the port.

Exemption conditions are construed strictly, and the claimant must establish that it falls within the notification and satisfies its conditions, as stated in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and Krishi Upaj Mandi Samiti v. Commissioner of Central Excise and Service Tax.

Under Section 74 of the CGST Act, tax and penalty require non-payment or short payment by reason of fraud, wilful misstatement or suppression of facts to evade tax; those ingredients must be supported by foundational facts, not merely recited.

Under Section 75(2), where Section 74 is unsustainable, tax may be determined as if the notice had been issued under Section 73; Section 73(9) provides for penalty of 10% of tax determined.

Interest is payable under Section 50 on tax remaining unpaid.

Section 15(2) of the CGST Act, read with Rule 35 of the CGST Rules, allows cum-tax treatment.

The Tribunal held that condition (vi) was substantive and mandatory: the drums had been delivered to third-party distilleries, not moved directly to a port or registered warehouse as required.

The appellant therefore did not qualify for the concession, consistently with the strict construction of exemption conditions and the Karnataka High Court’s decision in Time Technoplast Ltd. v. Union of India.

However, the appellant had disclosed to the Department, in letters concerning Transwave and Jeetsons, that the drums would be dispatched to the distilleries; those letters were also relied upon in the show-cause notice.

The Tribunal found no adequate proof of fraud, wilful misstatement or suppression to evade tax for those supplies, so Section 74 could not apply.

By contrast, the appellant had not submitted the required intimation for the Chandni Overseas invoice and accepted that omission, supporting the Section 74 demand and penalty for that supply.

The first appellate order addressed eligibility for the concession but did not deal with the Section 74 challenge.

The Tribunal also held that interest followed on tax payable and that cum-tax benefit applied.

It upheld the Section 74 tax demand and equivalent penalty for supplies to Chandni Overseas, but set aside the Section 74 demand and penalty for supplies to Transwave Exports and Jeetsons Exports.

The proper officer was directed to determine tax for those supplies under Section 75(2), treating the notice as issued under Section 73(1), with any applicable Section 73 penalty.

The appellant was allowed cum-tax benefit, and the tax payable was to be redetermined accordingly.

The appeal was partly allowed.