Panasonic Wins Partial Relief in GST Ruling: AAAR Upholds FTWZ Tax Treatment but Exempts ITC Reversal [Read Order]

The Tamil Nadu Appellate Authority for Advance Ruling (AAAR) has granted partial relief to Panasonic Life Solutions India Pvt. Ltd. in a significant GST case concerning supplies from Free Trade and Warehousing Zones (FTWZ). The authority upheld the tax-exempt status of such transactions under GST law while providing crucial relief by exempting the company from input tax credit (ITC) reversal requirements, except in cases involving duty-free shops.

The case originated from Panasonic's appeal against an earlier ruling by the Authority for Advance Ruling (AAR). The AAR had determined that transfers of goods within an FTWZ before customs clearance qualified as non-taxable supplies under Paragraph 8(a) of Schedule III of the CGST Act. However, it also mandated reversal of proportionate ITC on inputs used for these transactions. Panasonic contested this ITC reversal requirement while largely agreeing with the classification under Schedule III.

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The AAAR carefully examined the legal framework surrounding FTWZs, which function as special economic zones for trading and warehousing. It confirmed that these zones operate similarly to bonded warehouses under customs laws, making supplies from them fall under the "warehoused goods" category in GST provisions. This means such transactions remain outside GST's scope until the goods enter the Domestic Tariff Area (DTA). The ruling clarifies that Paragraph 8(b) of Schedule III, which covers high-sea sales and similar transactions involving endorsement of title documents, does not apply to routine FTWZ operations.

On the critical issue of ITC reversal, the AAAR modified the AAR's decision by limiting the requirement only to supplies made to duty-free shops at international airports. This interpretation aligns with Explanation 3 to Rule 43 of the CGST Rules, which specifically targets such transactions. For regular FTWZ operations, the AAAR ruled that no ITC reversal is necessary, providing significant compliance relief to Panasonic and similar businesses. The decision reflects the GST Council's intent to avoid blanket ITC restrictions and maintain a balanced approach to input credit mechanisms.

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The ruling carries important implications for companies operating in FTWZs and similar special economic zones. It confirms that GST liability arises only when goods move to the DTA, while protecting businesses from unnecessary ITC reversals that could strain working capital. The clarity on duty-free shop transactions also helps companies distinguish between different types of exempt supplies for compliance purposes. The bench comprising Dr. D. Jagannathan, IAS, Commissioner of Commercial Taxes, and  Ashish Varma, IRS, Principal Chief Commissioner of GST & Central Excise, emphasized the need to interpret GST provisions in harmony with customs and SEZ regulations

To Read the full text of the Order CLICK HERE

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