GST on Warehoused Goods Supplied to Naval and Merchant Vessels
The Authority for Advance Ruling clarified that supplying warehoused goods to naval or merchant vessels is a taxable inter-state supply under GST.
- Ruling
- AAR/AP/02(GST)/2017 dated 25th January 2018
- Dated
- 25 Jan 2018
- 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
- Parsan Brothers asked if supplies to naval and merchant vessels are GST-exempt.
- The authority ruled these supplies are taxable, not exempt.
- Suppliers may collect GST from their customers on these transactions.
- These transactions are classified as inter-state supplies under the IGST Act.
In short
The company asked the Authority for Advance Ruling (AAR) if selling duty-free ship stores to Indian Naval ships, Coast Guard ships, and foreign-run merchant vessels is exempt from Goods and Services Tax (GST). The authority decided that these sales are taxable supplies rather than exempt ones. This means businesses cannot assume these specific sales are tax-free just because the goods are stored in a customs-bonded warehouse.
What has changed
How it worked before
Many businesses assumed that supplying goods to naval or merchant vessels from a customs-bonded warehouse was exempt from tax, similar to how these goods were treated under previous customs regulations.
What has changed
The authority confirmed that these transactions are taxable inter-state supplies. In practice, this means you must charge GST on these sales unless you follow specific export procedures that allow for zero-rating, such as supplying under bond or paying tax and claiming a refund.
Who this affects
Businesses that hold special customs licenses to store and supply duty-free goods to naval, coast guard, or ocean-going merchant vessels.
An example
Imagine a company, 'SeaSupply Co.', that sells food and equipment to merchant ships from a bonded warehouse. They previously did not charge GST, believing the sale was exempt. Based on this ruling, SeaSupply Co. should now charge GST on these invoices. If they want to avoid charging tax, they must prove their transaction qualifies as an export under specific GST export procedures.
What you should do
If you supply goods to these vessels, you should review your tax invoices to ensure GST is being charged correctly. Remember that an advance ruling only binds the business that asked for it and its specific tax office; it is not a general law that applies to your business automatically. Consult your tax advisor to see if your specific supply process qualifies for export benefits.
If you do nothing
If you assume this ruling does not apply to you and stop charging GST, you risk a tax demand from your local officer. You may be forced to pay the unpaid tax, along with interest and potential penalties. Relying on an incorrect tax position can lead to significant financial liability during an audit.
The terms explained
- Warehoused goods
- Goods that are imported and stored in a secure area under customs supervision without paying import duties until they are removed.
- Inter-state supply
- A transaction where the location of the supplier and the place of supply are in different states, which generally attracts Integrated Goods and Services Tax (IGST).
- Zero-rating
- A status where the tax rate on a supply is 0%, allowing the business to claim back any tax paid on inputs used to create that supply.
The ruling in detail
Authority for Advance Ruling
M/s. PARSAN BROTHERS
AAR/AP/02(GST)/2017 dated 25th January 2018 · Andhra Pradesh
Questions before the authority
- Whether they are exempted from tax under GST on their outward supplies made to ocean going merchant vessels on foreign run, Indian Naval Ships and Indian Coast Guard Ships or not?
- If at all they are liable for GST on their outward supplies whether they can collect the GST from the recipient for the goods namely: Ocean going merchant vessels on foreign run, Indian Naval Ships, Indian Coast Guard Ships or from their authorized agents.
Facts
The applicant holds a Special Customs License for the storage of duty-free ship stores imported for supply to Indian Naval ships, Coast Guard ships, and ocean-going merchant vessels. They sought an advance ruling to determine if these outward supplies are exempt from GST and whether they are permitted to collect GST from the recipients.
Ruling
| Question | What the authority ruled |
|---|---|
| Exemption on outward supplies | Not exempt Supplies are treated as inter-state supplies |
| Collection of GST | Permitted Subject to export procedures if applicable |
The authority ruled that the applicant is not exempt from GST on these outward supplies. It further held that the applicant may collect applicable GST from their customers, noting that if the supplies qualify as exports, the applicant has the option to export under bond or on payment of tax.
Reasoning
The authority determined that the goods are within the customs area and their supply constitutes an inter-state supply under Section 7(2) of the IGST Act. Because the goods are neither nil-rated nor exempt by any notification, they are taxable. The ruling relies on Section 2(11) of the Customs Act, 1962, and Sections 7 and 9 of the CGST/IGST Acts, concluding that the transaction of sale of warehoused goods is a taxable supply.
Provisions relied on
- Section 104 of CGST & SGST Acts, 2017
- Section 2(11) of the Customs Act, 1962
- Section 88(a) of the Customs Act, 1962
- Section 2(5) of the IGST Act, 2017
- Section 2(56) of the CGST Act, 2017
- Section 2(47) of the CGST Act, 2017
- Section 7(2) of the IGST Act, 2017
- Section 9 of the CGST Act, 2017
- Section 20 of the IGST Act, 2017
- Section 15 of the CGST Act, 2017
- Circular No 46/2017-Customs
For the practitioner
This ruling clarifies that **warehoused goods supplied to naval or merchant vessels** are not automatically exempt from GST and are treated as taxable inter-state supplies. It confirms that suppliers may collect GST from recipients, while leaving the specific classification of 'exports' and associated zero-rating benefits to be determined by the applicant's specific export procedures. It does not provide a blanket exemption for ship stores.
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/ap_02-2017_25-01-18_parsan_brothers.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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