Supply of Warehoused Ship Stores to Vessels Within India Is Neither Export Nor Zero-Rated — But Falls Outside GST Altogether Under Schedule III Para 8(a): Maharashtra AAR

The Maharashtra Authority for Advance Ruling has delivered a detailed and analytically significant ruling holding that the supply of warehoused goods from a bonded warehouse to foreign-going merchant vessels, Indian Navy ships and Indian Coast Guard ships stationed within India does not qualify as "export of goods" under Section 2(5) of the IGST Act, 2017, and consequently cannot be treated as a zero-rated supply under Section 16. However — and this is the practically critical part of the ruling — the Authority has held that such supplies are covered by Paragraph 8(a) of Schedule III to the CGST Act read with Section 7(2)(a), and are therefore to be treated as neither a supply of goods nor a supply of services for the purposes of GST. The ruling was passed by Shri Dipak Gojamgunde and Smt. Himani Dhamija in GST-ARA-09/2021-22/B-52 on 30.03.2026.

M/s Sanctum Trading Corporation Private Limited, a registered duty-free ship-store supplier operating a Special Warehouse under the Customs Act, procures goods — primarily cosmetics, toiletries, food products, confectionery and cigarettes — either by direct import or from SEZ-based hubs, stores them duty-free, and supplies them against Duty-Free Shipping Bills to ocean-going merchant vessels, Indian Navy ships and Coast Guard vessels. The applicant sought a ruling that these supplies constitute exports and are zero-rated under Section 16 of the IGST Act.

The Authority's analysis proceeds on two tracks. On the "export" question, the ruling applies the strict destination-based test of Section 2(5) IGST Act ("taking goods out of India to a place outside India") read with the expansive definition of "India" under Section 2(56) CGST Act (which includes territorial waters, continental shelf, EEZ and airspace). Since the recipient vessels are stationed within India at the time of supply and the goods are physically transferred within Indian ports or territorial waters, the destination-based test is not met. The Authority draws a sharp distinction between the Customs Act concept of "export" — where Chapter X (Sections 85–90) extends duty exemption to ship stores as if they were exports — and the IGST Act definition, which requires actual movement to a place outside India. An exemption from customs duty cannot transmute into an "export" under GST law.

The Authority also rejects the applicant's reliance on Circular No. 113/32/2019-GST, holding that a Board circular cannot enlarge the statutory definition of "export" enacted by Parliament, and on the Andhra Pradesh AAR ruling in Fairmacs Shipstores, distinguishing it on the ground that in that case goods were stated to be destined to a place outside India.

The more consequential finding comes from the Authority's suo motu examination of Schedule III. Paragraph 8(a) — inserted w.e.f. 01.02.2019 — provides that "supply of warehoused goods to any person before clearance for home consumption" shall be treated as neither supply of goods nor supply of services. Since the goods in question are "warehoused goods" under Section 2(44) of the Customs Act, no Bill of Entry for home consumption is filed, and supply occurs before any such clearance, the transaction falls squarely within Para 8(a). The legal consequence is dispositive: if there is no supply, there is nothing to rate — at zero or any other rate. The Authority also endorsed the reasoning of the West Bengal AAR in Shewratan Company on the same issue.

The practical implication is significant: while no GST is payable on these supplies, the supplier also loses access to zero-rating benefits — most critically, refund of unutilised ITC under Section 54 read with Section 16(3) IGST Act. Bonded warehouse operators who have paid GST on procurement face potential ITC stranding.