2022 (4) TMI 1090 - AAAR - GST

Benefit of Concessional rate of tax - supply of HDPE Drums for use by the manufacturer of Ethyl Alcohol in his factory for packing his manufactured goods and supply to merchant exporter - bill-to ship-to model - applicability of N/N. 41/2017-IT (Rate) - HELD THAT - In the GST regime, the government has provided special relief to the merchant exporters by way of reducing the GST rate for purchasing goods from domestic suppliers for export. Accordingly, Notification Nos 40/2017 Central Tax (Rate) and 41/2017 Integrated Tax (Rate) both dated 23-10-2017 stipulates that intra-state/inter-state supplies of taxable goods by a registered supplier to a merchant exporter shall be chargeable to GST at 0.05% (in the case of intra-state supplies) and 0.1% (in the case of inter-state supplies) subject to the fulfilment of the conditions imposed. It is a settled issue that benefit under a conditional notification cannot be extended in case of non-fulfillment of conditions and/or non-compliance of procedure prescribed therein. The basic rule in interpretation of any statutory provision is that the plain words of the statute must be given effect to. It is only in the case of ambiguity that the principle of strict/liberal interpretation would arise. In this case, there is no ambiguity in the wordings of the impugned Notification. The conditions required to be complied with by the registered supplier and the registered recipient are very clear and does not give any scope for interpretation. One must not lose sight of the fact that this Notification was introduced only to provide relief to merchant exporters under the GST regime. The merchant exporters have the option to avail the benefit of this concessional rate and export the goods under LuT and later claim refund of the concessional rate of tax paid on their procurements. However, they can choose to export the goods on payment of IGST in which case, they will not be eligible to avail the benefit of concessional rate of tax under this Notification on their procurements. The CBIC vide Circular No 125/44/2019 GST dated 18-11-2019 has also clarified that the benefit of supplies at concessional rate if tax in terms of Notification No 40/2017 Central Tax (Rate) and Notification No 41/2017 Integrated Tax (Rate) is subject to certain conditions and the said benefit is optional. The option may or may not be availed by the supplier and/or recipient and the goods may be procured at the normal applicable rate of tax. The Appellant is not eligible for the benefit of the concessional rate of tax in terms of Notification No 41/2017 IT (Rate) dated 23-10-2017 in as much as they have not complied with the conditions of the Notification - Appeal dismissed.

Summary

Issues Involved:
1. Eligibility for 0.1% concessional rate of GST under Notification No 41/2017-IT (Rate).
2. Interpretation of conditions under Notification No 41/2017-IT (Rate).
3. Definition and role of a "registered warehouse".
4. Compliance with procedural requirements for concessional tax benefits.

Issue-wise Detailed Analysis:

1. Eligibility for 0.1% Concessional Rate of GST:
The appellant sought a ruling on whether they are eligible for the 0.1% concessional rate of tax on the supply of HDPE drums used for packing ethyl alcohol, which is then exported by a merchant exporter. The Authority for Advance Ruling (AAR) held that the appellant is not entitled to the concessional rate under Notification No 41/2017-IT (Rate). The Appellate Authority upheld this ruling, stating that the appellant failed to fulfill the necessary conditions, particularly regarding the movement of goods directly from the supplier's premises to the port or a registered warehouse.

2. Interpretation of Conditions under Notification No 41/2017-IT (Rate):
The appellant argued that the AAR adopted a narrow interpretation of the notification's conditions, particularly the requirement for goods to move "directly" to the port or a registered warehouse. They contended that the term "supply" under Section 7 of the CGST Act and Section 10 of the IGST Act includes various forms of supply, including movement to a third party on the recipient's directions. The appellant asserted that their practice of delivering drums to the chemical manufacturer's premises for packing ethyl alcohol, which is then exported, should qualify under the notification.

3. Definition and Role of a "Registered Warehouse":
The appellant argued that the premises of the chemical manufacturer should be deemed a "registered warehouse" for the purposes of the notification. However, the Appellate Authority disagreed, stating that a factory and a warehouse serve distinctly different purposes and cannot be merged. The authority emphasized that a warehouse is a place for storing goods, not for manufacturing or processing them, and thus the sugar factory cannot be considered a registered warehouse.

4. Compliance with Procedural Requirements for Concessional Tax Benefits:
The appellant emphasized that all substantial conditions of the notification were met, and any procedural lapses should not preclude them from receiving the concessional rate. They cited various Supreme Court decisions advocating for a liberal interpretation of beneficial notifications. However, the Appellate Authority maintained that the conditions of the notification must be strictly complied with to avail the benefits. The authority concluded that the appellant did not fulfill the condition requiring goods to move directly to the port or a registered warehouse, thus disqualifying them from the concessional rate.

Conclusion:
The Appellate Authority upheld the AAR's ruling that the appellant is not eligible for the 0.1% concessional rate of tax under Notification No 41/2017-IT (Rate) due to non-compliance with the conditions, particularly the direct movement of goods to the port or a registered warehouse. The appeal was dismissed on all accounts.