The Appellant is engaged in the manufacture of packaging material including HDPE Drums, Jerrycans and Intermediate Bulk Containers falling under HSN 3923. The goods are supplied to customers who are exporters holding IEC number and registered with the Export Promotion Council. The above types of packaging material are billed to the merchant exporter (who is their customer) but shipped, on the instructions of their customer, to the premises of the chemical manufacturer, who manufacturers ethyl alcohol and packs the same in the said HDPE drums. The merchant exporter then exports the ethyl alcohol packed in the HDPE drums within the stipulated time

 The Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question: “Whether they are liable for 0.1% concessional rate of tax under Notification No. 41/2017-IT (Rate) on 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?”

The AAR passed advance ruling order No. KAR ADRG 54/2021 dated 29-10-2021 and held as follows: “The applicant is not entitled for 0.1% concessional rate of tax (GST) under Notification No. 41/2017-IT (Rate) on supply of HDPE Drums for use by the manufacturer of Ethyl Alcohol in his factory for packaging his manufactured goods and supply to merchant exporter

Aggrieved by the above ruling given by the AAR, the Appellant has filed this appeal on the following grounds

Out of all the conditions laid down in Notf. No. 41/2017 – IT (Rate), only the first condition is applicable to the supplier and all the other conditions are to be complied with by the recipient. The only ground on which the exemption could be denied to the supplier is when the goods are not exported by the recipient within a period of ninety days; that for failure to fulfil any of the other conditions which are qua recipient, the burden of differential tax shall lie on the recipient and not on the supplier. Therefore, the ruling that the Appellant is not eligible for exemption on the ground that the recipient does not fulfil.

The Appellant submitted that the AAR has failed to appreciate the conditions in the Notification in proper perspective keeping in view the overall objective of the Notification, thereby adopting a narrow interpretation of the condition that the recipient has to move the goods ‘directly’ to the port, etc. or to a warehouse;

The Appellant submitted that a strict interpretation would render the Notification No. 41/2017 IT (Rate) otiose and dysfunctional; that condition (vi) of the Notification states that “the registered recipient shall move the said goods from place of registered supplier

They submitted that the drums are delivered to the manufacturer-supplier of chemicals only for the purpose of filing the chemicals and, from the premises of the chemical supplier the drums with the chemicals are cleared by the recipient exporter directly to the Port, etc. and exported; that in the process, the drums do not undergo any change and are clearly identifiable; that the recipient also mentions the GSTIN of the Appellant, the invoice number under which the drums were supplied in the Shipping Bill as required in the Notification; that it is clearly established that the drums supplied by the Appellant are actually exported and the same is evidenced through documents.

They argued that the premises of the sugar factory is to be construed as the “registered warehouse” where the goods get aggregated by the merchant exporter and hence they satisfy the condition No. (vii) of the impugned Notification; that having complied with all other conditions of the Notification, they should not be denied the benefit.

They submitted that denial of exemption to the Appellant on hyper technical grounds would thus defeat the objective of the Notification and hence the ruling of the AAR requires to be reversed since the substantial conditions of the Notification are fulfilled by the recipient exporter