The Goods and Services Tax Appellate Tribunal (GSTAT), Chandigarh, has held that HDPE drums sent to third-party distilleries before export do not qualify for the concessional 0.1% IGST rate under Notification No. 41/2017–Integrated Tax (Rate). The Tribunal ruled that direct movement to the export point or a registered warehouse is a mandatory substantive condition of the notification.

However, the bench of Jatinder Pal Singh (Judicial Member) and Pradeep Kumar Goel (Technical Member) granted partial relief from proceedings under Section 74 of the Central Goods and Services Tax Act, 2017, for supplies whose movement had been disclosed to the department. It held that an incorrect claim to a tax concession does not, by itself, establish fraud, wilful misstatement or suppression of facts to evade tax.

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The dispute concerned supplies of HDPE barrels and drums, classifiable under Heading 3923, during April 2018 to March 2019.

The company supplied drums to Transwave Exports, Hyderabad; Jeetsons Exports Pvt. Ltd., Pune; and Chandni Overseas Private Limited, West Bengal, claiming the concessional 0.1% IGST rate under the merchant-export notification.

For supplies to Transwave Exports and Jeetsons Exports, the company stated that it had informed the jurisdictional GST authorities about the purchase orders and proposed dispatch of drums to Patiala Distillers and Manufacturing Ltd., Patiala, and Haryana Distillery Ltd., Yamuna Nagar. The drums were filled with Extra Neutral Alcohol (ENA) before export.

For a separate supply to Chandni Overseas under an invoice dated September 22, 2018, no such intimation had been submitted. The taxable value of this supply was ₹2,04,480.

The department issued a pre-notice intimation on April 4, 2022, followed by a show cause notice on May 14, 2022. It alleged that the goods had not moved directly to an export point or registered warehouse as required by the notification.

The department also relied on the fact that the supplier cleared HDPE drums, whereas the exported goods were ENA, to allege misdeclaration and tax evasion.

The adjudicating authority confirmed a tax demand of ₹8,06,803, along with interest and an equivalent penalty under Section 74. The demand comprised CGST of ₹3,09,600, SGST of ₹3,09,600 and IGST of ₹1,87,603. The first appellate authority upheld the demand and penalty.

The company argued that the substantive requirement of export had been fulfilled and that the concession should not be denied for failure to satisfy a procedural condition.

The Tribunal rejected this argument after examining condition (vi) of Notification No. 41/2017–Integrated Tax (Rate), dated October 23, 2017.

The condition requires the registered recipient to move the goods from the supplier’s premises directly to the port, inland container depot, airport or land customs station of export. Alternatively, the goods may move directly to a registered warehouse before onward movement to the export point.

The Bench emphasised that the word “directly” appears in both permitted routes. The use of “shall” further indicated that compliance was mandatory.

It was undisputed that the drums had moved to the two distilleries. The company had not established that the goods moved directly to an export point or a registered warehouse within the meaning of the notification.

The Tribunal consequently held that eventual export did not cure non-compliance with this substantive condition.

The Tribunal relied on the Karnataka High Court’s decision in Time Technoplast Ltd. v. Union of India, dated March 11, 2026, which, as recorded in the GSTAT order, concerned HDPE drums sent to a third-party ENA manufacturer before export.

The Bench noted that the High Court had required strict compliance with the notification’s conditions. It also recorded that the Supreme Court dismissed the special leave petition against that judgment on August 7, 2026, declining interference under Article 136.

The company’s reliance on Mangalore Chemicals and Fertilizers Ltd. to distinguish procedural requirements from substantive conditions did not persuade the Tribunal.

GSTAT held that direct movement to the export point or a registered warehouse was itself a substantive requirement. It therefore sustained denial of the concessional rate.

The Tribunal separately examined whether the department was justified in invoking Section 74.

The company relied on three letters dated August 9, 2018, and January 16, 2019, disclosing purchase orders for supplies to Transwave Exports and Jeetsons Exports. These letters expressly identified the distilleries to which the drums would be dispatched.

The Tribunal found that the show cause notice itself referred to these letters and included them as relied-upon documents. The department was therefore aware of the movement arrangement for those supplies.

The Bench also rejected the reasoning that export of ENA rather than empty drums necessarily demonstrated misdeclaration. It observed that ENA, being a liquid, had to be exported in containers.

The shipping bills mentioned the drums and their numbers. The entries relating to marks and numbers also referred to the supplier’s name and invoice numbers.

The Tribunal held that incorrect availment of a concession could not automatically be equated with an attempt to evade tax. The ingredients of fraud, wilful misstatement or suppression of facts to evade tax had to be established.

For the disclosed supplies, the Revenue had not adequately discharged that burden.

For supplies to Transwave Exports and Jeetsons Exports, the Tribunal set aside confirmation of the demand and penalty under Section 74.

It directed the proper officer to determine the tax payable under Section 75(2), treating the show cause notice as one issued under Section 73(1).

This relief did not extinguish the underlying tax liability arising from denial of the concession. The Tribunal further stated that the penalty prescribed under Section 73 would apply if tax was determined as payable. In its discussion, the Bench referred to a penalty equivalent to 10% of the tax under Section 73(9).

The Tribunal reached a different conclusion for the supply to Chandni Overseas.

It noted that the company had not disputed the allegation that no intimation concerning the purchase order or supply invoice had been submitted to the jurisdictional tax officer. The absence of intimation was also accepted in the appeal memorandum.

On the facts of that transaction, the Bench upheld invocation of Section 74 and the associated demand and penalty.

The order thus distinguished between supplies whose movement had been disclosed to the department and the separate supply for which no intimation was furnished.

The Tribunal sustained liability to interest under Section 50 on the tax determined as payable. It explained that interest is compensatory and relates to the amount of tax withheld and the period of delay.

The Bench also accepted the company’s alternative claim for cum-tax benefit under Section 15(2), read with Rule 35 of the CGST Rules, 2017. The tax payable must therefore be recalculated using the tax-inclusive valuation treatment allowed in the order.

Consequently, ₹8,06,803 represents the original disputed demand, rather than the final quantified liability following the Tribunal’s directions. The order summary records that the demand was not quantified and remits the matter to the adjudicating authority.

The Tribunal partly allowed the appeal and modified the first appellate order. It maintained denial of the concessional rate, retained Section 74 proceedings for the Chandni Overseas transaction, and directed reassessment under Section 73 for supplies to Transwave Exports and Jeetsons Exports.

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