GST Credit Blocked on Packaging Used for Tax-Exempt Goods
Businesses cannot claim GST credit on packaging used for exempt goods, but can if the packaging itself is supplied as taxable.
- Ruling
- No.STC/AAR/01/2018 dated 06.06.2018
- Dated
- 06 Jun 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
- VNR Seeds asked if GST credit applies to packaging used for tax-free seeds.
- Authority denied tax credit on packaging materials used for exempt seeds.
- Packaging used for tax-free items becomes part of the exempt supply.
- Tax credit is allowed if packaging is sent separately as a taxable item.
In short
VNR Seeds Pvt. Ltd. sells agricultural seeds, which are exempt from GST, packed in taxable packaging materials. In Order STC/AAR/01/2018, the company asked the Chhattisgarh Authority for Advance Ruling whether it could claim input tax credit (ITC) on the GST paid when purchasing packaging, both for selling seeds and for sending materials to its branch offices in other states.
What has changed
How it worked before
Many businesses assumed that because packaging material was bought after paying GST, they could claim input tax credit on it regardless of whether the final item inside was tax-exempt.
What has changed
The authority decided that packing materials used to pack exempt seeds form part of a single exempt supply, so no input tax credit can be claimed on them. Under Section 17(2) of the Goods and Services Tax laws, tax credit is blocked for inputs used to make tax-free supplies. However, if a business transfers plain packaging materials alone to its branches in another state as a separate taxable supply, it can claim input tax credit on that purchase.
Who this affects
Businesses that sell tax-exempt goods like seeds or food in taxable packaging, or transfer packaging materials between branch offices across states.
An example
Green Harvest Farmers Pvt. Ltd. buys plastic bags paying 18% GST to pack tax-exempt wheat seeds for sale and branch transfers. They also buy cardboard boxes and ship them unused to their branch office in another state as a separate billed item. Based on this ruling's logic, the company cannot claim input tax credit on the plastic bags used for packing wheat seeds. However, they can claim credit on the GST paid for the cardboard boxes transferred as an independent taxable supply.
What you should do
Check whether your business claims GST credit on packaging materials used for tax-exempt products. Note that an advance ruling binds only the business that applied for it and its local tax authority. If you operate similarly, consult a GST professional or apply for your own advance ruling before changing your tax filings.
If you do nothing
If you claim input tax credit on packaging used for exempt goods, a tax officer may disallow the credit during an audit. You will be required to repay the claimed credit along with interest and penalties. Assuming another company's ruling automatically protects your business leaves you open to tax demands.
The terms explained
- input tax credit
- The GST a business pays on its purchases, which it can deduct from the GST it collects on its sales.
- exempt supply
- Goods or services on which no GST is charged to the customer.
- composite supply
- A sale of two or more items bundled together, where the main item determines the tax treatment for the whole bundle.
The ruling in detail
Authority for Advance Ruling
M/s VNR Seeds Pvt. Ltd.
No.STC/AAR/01/2018 dated 06.06.2018 · Chhattisgarh
Questions before the authority
- Whether the applicant is entitled to Input Tax Credit (ITC) on packaging materials purchased and used for supplying seeds (an exempted item) to its own branches and other purchasers.
- Whether the applicant is entitled to Input Tax Credit (ITC) when transferring packaging materials as an exclusive taxable supply between its own branches in different States.
Facts
The applicant is engaged in the business of supplying seeds for sowing purposes in packaged form using taxable packaging materials, operating through multiple GST registrations across various States. It procures taxable inputs like packaging materials and consumables for seed processing and packaging, and transfers these inputs between its branches and processing units. While seeds for sowing are exempt from GST, the packaging materials purchased and inter-branch transfers of such materials are taxable under GST.
Ruling
| Question | What the authority ruled |
|---|---|
| ITC on packaging material used for supplying exempted seeds to branches or purchasers | Not entitled to ITC Supply of packaged seeds is a composite supply where the principal supply (seeds) is exempt |
| ITC on packaging material transferred exclusively as a taxable supply to own branches | Entitled to ITC Allowed under Section 17(2) of the CGGST Act, 2017 |
The Authority ruled that the applicant is **not entitled to ITC on packing material used for packaging seeds** when supplying such exempted seeds to its own branches or other purchasers. However, the applicant is **entitled to ITC on packing material** when making an exclusive taxable supply of such packing material to its own branches in other States pursuant to Section 17(2) of the Chhattisgarh Goods and Services Tax Act, 2017.
Reasoning
The AAR analyzed Section 2(30) and Section 8 of the CGGST Act, 2017, determining that packaging and supplying seeds forms a composite supply where seeds constitute the principal exempt supply. Under Section 17(2) of the CGGST Act, 2017, ITC is restricted to inputs used for effecting taxable supplies and cannot be claimed on inputs used in making exempt supplies. Therefore, when packaging materials are consumed in supplying exempt seeds, no ITC can be claimed. On the other hand, if packaging material itself is transferred standalone to other branches as an independent taxable supply, the applicant is eligible to claim ITC on its purchase.
Provisions relied on
- Section 2(30) of CGGST Act, 2017
- Section 8 of CGGST Act, 2017
- Section 16(1) of CGGST Act, 2017
- Section 17(2) of CGGST Act, 2017
- Section 41 of CGGST Act, 2017
- Section 49(1) of CGGST Act, 2017
For the practitioner
This ruling establishes that tax paid on packaging materials used for exempt goods cannot be recovered as **ITC on composite exempt supplies**, even for inter-branch stock transfers. However, it confirms that ITC remains admissible when taxable packaging goods are **transferred separately as taxable outward supplies** to distinct branch entities.
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/chhtgrh-01_2018-06.06.18-vnrspl.pdf
Legibility of the scan, as read: high.
Prepared 19-10-2026.
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