GST on Goods Transferred Within a Free Trade Warehousing Zone
The Tamil Nadu Authority for Advance Ruling decided that transferring goods inside an FTWZ does not qualify for GST exemption under Schedule III.
- Ruling
- Advance Ruling No. 23 /ARA/2023 Dated: 20.06.2023
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Haworth India asked if FTWZ title transfers are exempt from GST.
- The Authority ruled these transfers are not covered by Schedule III.
- FTWZ units are governed by SEZ laws, not Customs warehouse rules.
In short
The company asked if selling goods while they sit in a Free Trade Warehousing Zone (FTWZ) counts as a non-taxable transaction under the Goods and Services Tax (GST) law. They hoped to use the same tax-free status that applies to goods held in traditional Customs-bonded warehouses. The Authority decided that because FTWZs operate under different laws, this specific tax exemption does not apply to them.
What has changed
How it worked before
Many businesses assumed that transferring ownership of goods stored in an FTWZ was tax-neutral, similar to how high-sea sales or bonded warehouse transfers are treated under Schedule III.
What has changed
The Authority clarified that FTWZ facilities are not 'warehouses' under the Customs Act. This means you cannot treat these transfers as outside the scope of GST, and you must account for tax on these transactions.
Who this affects
Businesses that import goods, store them in an FTWZ, and transfer ownership to customers before the goods leave the zone.
An example
Imagine a furniture importer, 'OfficeStyle Co.', stores desks in an FTWZ and sells them to a client without moving them out. They might hope this is tax-free under Schedule III. Based on this ruling, the tax department would likely view this as a taxable supply, meaning OfficeStyle Co. must pay GST on the transaction.
What you should do
If you operate in an FTWZ, you should review your tax filings to ensure you are not incorrectly claiming an exemption. Remember, an Advance Ruling only binds the company that asked and its specific tax office; it is not a general law that applies to your business automatically.
If you do nothing
If you assume this ruling does not apply to you and continue to treat these transfers as exempt, you risk a tax audit. If the department disagrees with your interpretation, you may face demands for unpaid GST, interest, and significant penalties for non-compliance.
The terms explained
- Schedule III
- A list in the GST law that describes activities or transactions that are treated as neither a supply of goods nor a supply of services, meaning no GST is charged.
- Free Trade Warehousing Zone (FTWZ)
- A special zone where imported goods can be stored and handled under specific rules, often intended to facilitate international trade.
- Deeming fiction
- A legal rule that treats a situation as if it were something else for the purpose of applying a specific law.
The ruling in detail
Authority for Advance Ruling
M/s. Haworth India Private Limited
Advance Ruling No. 23 /ARA/2023 Dated: 20.06.2023 · Tamil Nadu
Questions before the authority
- In the facts and circumstances of the case, whether the transfer of title of goods by the Applicant to its customers or multiple transfers within the FTWZ would result in bonded warehouse transaction covered under Schedule III of the CGST Act, 2017 r/w CGST Amendment Act, 2018?
- Whether the Integrated Tax (IGST) Circular No. 3/1/2018 dated 25.05.2018 is applicable to the present factual situation?
Facts
The applicant is engaged in the manufacture and sale of office furniture and intends to store imported goods in a Free Trade Warehousing Zone (FTWZ). They propose to transfer the title of these goods to customers while the goods remain in the FTWZ, without physical removal, to expedite project execution. The applicant sought to determine if these transfers qualify as transactions covered under Schedule III of the CGST Act, 2017.
Ruling
| Question | What the authority ruled |
|---|---|
| Applicability of Schedule III to FTWZ transfers | No, it will not be covered under Schedule III of the CGST Act, 2017. The ruling is based on the distinction between FTWZ and Customs bonded warehouses. |
| Applicability of Circular No. 3/1/2018 | Not applicable. The circular was rescinded and specifically pertains to Customs bonded warehouses, not FTWZ. |
The Authority ruled that the transfer of title of goods within an FTWZ does not fall under the scope of Schedule III of the CGST Act, 2017. It concluded that FTWZ facilities are governed by the SEZ Act, 2005, and are not considered warehouses licensed under the Customs Act, 1962. Consequently, the specific relief provided under Schedule III for bonded warehouse transactions is not applicable to the applicant's proposed operations.
Reasoning
The Authority reasoned that Schedule III, Entry 8(a) of the CGST Act, 2017, specifically refers to 'warehoused goods' as defined under the Customs Act, 1962. It determined that FTWZ units are governed by the SEZ Act, 2005, and do not constitute a 'warehouse' as defined under Sections 57, 58, or 58A of the Customs Act, 1962. Therefore, the **deeming fiction** of Schedule III does not extend to transactions occurring within an FTWZ. Furthermore, the cited IGST Circular was found to be inapplicable as it was rescinded and limited to Customs bonded warehouses.
Provisions relied on
- Section 98 of the CGST Act, 2017
- Section 103 of the CGST Act, 2017
- Schedule III of the CGST Act, 2017
- Section 2(43) and 2(44) of the Customs Act, 1962
- Sections 57, 58, and 58A of the Customs Act, 1962
- Special Economic Zones Act, 2005
For the practitioner
This ruling clarifies that the **tax neutrality** provided by Schedule III for high-sea sales or bonded warehouse transfers does not automatically apply to transactions within an FTWZ. Practitioners should note that the Authority strictly interprets 'warehoused goods' to exclude FTWZ operations. This decision creates a significant compliance risk for entities relying on the assumption that FTWZ transfers are outside the scope of GST.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/23_aar_2023haworth.pdf
Legibility of the scan, as read: high.
Prepared 18-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.