Manufacturer of HDPE Drums not eligible for Concessional Rate Tax: AAAR upholds decision of AAR [Read Order]

Manufacturer - HDPE Drums - concessional rate tax - AAAR - AAR - Taxscan

The Karnataka Appellate Authority for Advance Ruling (AAAR) has held that the manufacturer of HDPE Drums not eligible for concessional rate tax and uphold the decision of AAR.

The appellant M/s Time Technoplast Ltd. is engaged in the manufacture of packaging material including HDPE Drums, Jerrycans and intermediate Bulk Containers. the HDPE Drums are supplied to the merchant exporter on a bill to ship to model; that the drums are delivered to the premises of the chemical manufacturer on advice of the merchant exporter; that the drums are filled with the chemical ethyl alcohol at the premises of the chemical manufacturer and are sent directly to the port for export.

The appellant approached the AAR seeking a ruling that whether appellant is liable for 0.1% concessional rate tax under Notification No. 41/2017 on supply of HDPE Drums for use by the manufacture of ethyl alcohol in his factory for packing his manufactured goods and supply to merchant exporter. The AAR holds that the appellant is not entitle for the concessional rate aggrieved appellant filed appeal before the AAAR.

The appellant submitted that AAR has failed to appreciate the condition in the Notification in proper perspective; they adopted a narrow interpretation of the condition that the recipient has to move the goods directly to the port, etc or to a warehouse. Strict interpretation would render the Notification otiose and dysfunctional. The basic objective of the subject Notification is to encourage exports and to remove bottlenecks in the form of working capital to exporters on account of taxes.

The appellant further submitted that the merchant exporter has aggregate the drums purchased from them and the ethyl alcohol purchased from the sugar factory in the premises of the sugar factory, which is deemed to be the warehouse, and after this aggregation the goods are moved to the port for export. The premises of the sugar factory which is registered under the GST law can be considered as a registered warehouse.

The Appellate Authority observed that the sugar factory cannot be considered as the registered warehouse, a factory of production and a warehouse are separate premises whose purpose of business is distinctly different from one another and cannot be fictionally merged into one. Further observed by the Appellate Authority that, the benefit under a conditional notification cannot be extended in case of non-fulfillment of conditions or noncompliance of procedure prescribed therein. It is only in case of ambiguity that the principle of strict or liberal interpretation would arise. In this case there is no ambiguity in the wordings of the impugned notification.

The Coram of Smt. Ranjana Jha and Smt. Shikha C have held that “one must not lose the sight of the fact that this Notification was introduced only to provide relief to merchant exporters under GST regime”. Further observed that the CBIC in circular No 125/44/2019 GST has also clarified that the benefit of supplies at concessional rate if tax interms of the Notification No 40/2017 and 41/2017 is subject to certain condition and the said benefit is optional. The option may or may not be availed by the supplier and receipt and the goods may be procured at the normal applicable rate of tax. Therefore we agree with the ruling passed by the lower authority that the appellant is not eligible for the benefit of the concessional rate tax in terms of Notification No 41/2017 in as much as they have not complied with the conditions of the Notification”.

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