GST 0.1% Concessional Rate Under Notification No. 41/2017: Karnataka High Court Rules Strict Route Compliance Is Non-Negotiable

Overview: When a Genuine Export Is Not Enough

There are moments in tax law where the outcome of a transaction is undeniable — goods moved, shipments cleared, foreign exchange received — and yet the legal benefit sought remains out of reach. This is precisely what unfolded before the Karnataka High Court in a case that has since become a significant reference point for assessees operating within the merchant exporter ecosystem under GST.

The core message from the Court is unambiguous: completing an export does not automatically entitle an assessee to the concessional GST rate of 0.1%. What matters equally — and perhaps more — is whether the prescribed route and conditions laid down under the notification were followed at every step of the supply chain.

Before examining the facts of the case, it is essential to understand the architecture of the scheme in question.

Notification No. 41/2017 – IGST (Rate) was introduced to facilitate exports by allowing registered suppliers to supply goods to merchant exporters at a deeply concessional rate of 0.1% IGST, as opposed to the standard applicable rate. The intent was to reduce the working capital burden on export supply chains.

The Scheme's Key Participants

The notification is deliberately structured around a two-party framework:

  1. The registered supplier — the entity making the supply
  2. The registered recipient — the merchant exporter who holds a valid GST registration

This bilateral relationship forms the foundation of the entire scheme. Everything else — conditions, movement requirements, aggregation permissions — flows from this defined relationship.

Prescribed Conditions Under the Notification

The concessional rate is not unconditional. The following requirements must be met:

  • The purchase order must be placed by the registered recipient (merchant exporter) upon the registered supplier
  • The supply must originate from the registered supplier's place of business
  • The goods must move from the supplier's premises and be directed either:
    • Directly to the port, inland container depot, customs station, or airport from where export will take place, or
    • To a registered warehouse, from where the goods are subsequently exported
  • Where goods from multiple suppliers are aggregated before export, the movement must still remain within this defined corridor

Critical Legal Point: The notification is not merely concerned with the final destination of the goods (i.e., export). It is equally — if not more — concerned with the path the goods travel to reach that destination. In exemption law, the route is an intrinsic part of the entitlement itself.

The Case: Time Technoplast Ltd. v. Union of India

Citation: Time Technoplast Ltd. v. Union of India 2026 (3) TMI 899 – KARNATAKA HIGH COURT

Background Facts

The assessee, Time Technoplast Ltd., was engaged in the manufacture and supply of HDPE drums. It received purchase orders from a merchant exporter and supplied the drums accordingly at the concessional rate of 0.1% under Notification No. 41/2017.

However, the goods — the HDPE drums — were not delivered directly to the merchant exporter or to any port or registered warehouse. Instead, they were dispatched to a chemical manufacturer, a third party in the commercial chain. This chemical manufacturer used the drums as packaging containers, filled them with the chemical product, and subsequently exported the packed goods.

The Assessee's Position

From a commercial and business perspective, the assessee's position appeared reasonable: