The Supreme Court has declined to interfere with the Karnataka High Court ruling by which it was ruled that the concessional GST rate of 0.1% available under Notification No. 41/2017–Integrated Tax (Rate) cannot be claimed where goods are supplied to a third-party manufacturer instead of being supplied directly to the registered merchant exporter. 

The bench of Justice Manoj Misra and Justice Vijay Bishnoi has observed that the conditions prescribed under the notification must be complied with strictly and that the ultimate export of the finished goods cannot, by itself, cure a deviation from the prescribed supply and movement conditions.

The petitioner/assessee is engaged in the manufacture of packaging materials, including HDPE drums. The dispute arose in relation to supplies of such drums made pursuant to purchase orders placed by merchant exporters.

Buy Now: 130 GST Judgments – E-Magazine July 2026

Although the purchase orders were placed by merchant exporters, the goods were not physically supplied directly to those exporters. Instead, the HDPE drums were supplied to chemical manufacturers, who used the drums for packing ethyl alcohol. The packed goods were subsequently exported by the merchant exporters.

The petitioner claimed that the supplies should nevertheless qualify for the concessional GST rate of 0.1% prescribed under Notification No. 41/2017–Integrated Tax (Rate), on the basis that the transactions were ultimately connected with exports.

The tax authorities, however, rejected this interpretation. Both the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) denied the benefit, leading the petitioner to approach the Karnataka High Court.

The central question before the High Court was whether a manufacturer supplying goods to a third-party manufacturer could claim the concessional GST rate meant for supplies to merchant exporters when the goods were ultimately used in the manufacture or packing of products that were exported.

The petitioner sought to rely on the ultimate export of the goods and the underlying purpose of the concessional notification. Its argument essentially sought a broader, purposive interpretation under which the benefit would not be denied merely because the goods physically moved to a third party before the export transaction was completed.

The High Court, however, focused on the specific statutory and procedural conditions contained in Notification No. 41/2017.

The Bench of Justice S.G. Pandit and Justice K.V. Aravind noted that the notification contemplates a transaction involving the registered supplier and the registered recipient, namely the merchant exporter.

The Court observed that the notification does not merely require the goods to have an eventual nexus with an export transaction. Rather, it lays down specific requirements concerning the identity of the recipient, placement of the order and movement of the goods.

According to the Court, the registered recipient is required to place the order and the goods are required to be supplied directly to that recipient or moved in accordance with the alternative mechanism contemplated under the notification, including movement to a recognised warehouse for export.

In the present case, however, the goods were supplied to a chemical manufacturer, which was neither the registered merchant exporter who placed the order nor a recognised warehouse contemplated by the notification.

The Court considered this deviation material rather than merely procedural.

The High Court held that the fact that the chemical manufacturer ultimately used the HDPE drums for packing ethyl alcohol, which was subsequently exported, could not substitute compliance with the express conditions of the notification.

The concessional rate is not triggered simply because goods supplied by one registered person eventually become connected with exported goods. The manner in which the goods are supplied and moved must also satisfy the requirements prescribed by the notification.

Thus, the Court drew a distinction between the ultimate commercial purpose of the transaction and the specific legal conditions attached to the tax concession.

The Court effectively held that where the notification prescribes a direct supply arrangement involving the merchant exporter, the taxpayer cannot expand the benefit to cover an indirect supply chain merely because the goods eventually contribute to an export.

While deciding the issue, the High Court relied upon the settled principle laid down by the Supreme Court in Commissioner of Customs v. Dilip Kumar and Company concerning interpretation of exemption notifications.

The principle requires exemption and concessional provisions to be interpreted strictly. Where a taxpayer seeks the benefit of an exemption or concession, the prescribed conditions must be satisfied in the manner contemplated by the notification.

The High Court accordingly rejected an interpretation that would effectively add flexibility to the notification beyond its express language.

The Court emphasised that where the language of the notification is clear, courts cannot rewrite its conditions or enlarge the class of transactions entitled to the concession.

The petitioner also sought to rely upon the objective behind introducing the concessional GST rate.

The concessional rate for supplies to merchant exporters was introduced, among other things, to facilitate exports and reduce the working-capital burden associated with taxes on inputs procured by exporters.

The High Court accepted the relevance of this objective but held that the purpose of a notification cannot be used to disregard conditions expressly incorporated into it.

In other words, even if a particular transaction advances the broad objective of promoting exports, the benefit cannot automatically be extended where the transaction does not fall within the precise framework prescribed by the notification.

The Court therefore refused to adopt a purposive interpretation that would permit supplies to an intermediary or third-party manufacturer despite the notification’s direct-supply requirements.

Having found that the goods were supplied to a third-party chemical manufacturer rather than directly to the registered merchant exporter, the High Court upheld the view taken by the AAR and AAAR.

The writ petition filed by Time Technoplast was accordingly dismissed.

The ruling establishes that the identity of the recipient and the prescribed movement of goods are substantive conditions for claiming the 0.1% concessional GST rate, rather than requirements that can be overlooked merely because the goods are ultimately connected with exports.

The litigation subsequently reached the Supreme Court through Special Leave Petition (Civil) No. 25801/2026, arising from the Karnataka High Court’s judgment dated March 11, 2026 in W.P. No. 5460/2023.

On August 7, 2026, the Supreme Court Bench of Justice Manoj Misra and Justice Vijay Bishnoi considered the petition at the admission stage. The Court recorded that it did not find a good ground to interfere with the Karnataka High Court judgment in exercise of its jurisdiction under Article 136 of the Constitution and accordingly dismissed the Special Leave Petition.
The Supreme Court’s order therefore leaves the Karnataka High Court’s ruling undisturbed.

The decision underscores an important principle for manufacturers and merchant exporters seeking concessional GST treatment: the ultimate export of goods is not, by itself, sufficient to establish eligibility for a concession where the notification prescribes specific conditions governing the supply transaction.

Businesses seeking the 0.1% rate must therefore pay close attention not only to the commercial purpose of the transaction but also to the statutory requirements concerning the registered recipient, purchase order, delivery and movement of goods.

An indirect supply arrangement involving a third-party manufacturer may fall outside the scope of the notification even where the goods are ultimately used in products that are exported.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Delay In GST Appeal Can Be Condoned Where Taxpayer Was Unaware of Order: Rajasthan HC