In re Inox Air Products P Ltd. (GST AAR Gujarat)
The Gujarat Authority for Advance Ruling (AAR) addressed the application of M/s. Inox Air Products P Ltd., a manufacturer and supplier of industrial gases. Inox Air sought clarification on the GST implications of transit losses of liquid gases, which evaporate during transportation due to their volatile nature. The company transports these gases in specialized cryogenic tanks, often delivering to multiple customers in a single trip (milk run). Due to evaporation, the exact quantity delivered is determined only upon decanting at the customer’s premises. Inox Air, following past excise duty practices, was paying GST on the total dispatched quantity, including transit losses, and sought to determine if this was necessary under the GST regime. They questioned whether GST was payable on these losses, how to value such supply, and if Input Tax Credit (ITC) reversal was required under Section 17(5)(h) of the CGST Act, 2017. The company argued that the transit loss did not constitute a “supply” as defined under Section 7 of the CGST Act, citing prior rulings and asserting that the loss was accounted for as a cost in their books.
The AAR examined Inox Air’s submissions, including procedural details of gas dispatch, delivery, and invoicing, as well as relevant provisions of the CGST Act and Rules. The AAR noted the difference between the legacy excise regime and the GST regime, where the taxable event is “supply.” The AAR determined that the transit loss occurred before the place and time of supply, as defined by the IGST and CGST Acts, respectively. Since the lost gas was never delivered to the customer, it did not constitute a “supply” under Section 7. Consequently, the AAR ruled that Inox Air was not liable to pay GST on the transit loss. However, regarding ITC reversal, the AAR held that while the loss was not a manufacturing loss, the inputs used in the lost goods did not fulfill the criteria of being used in the furtherance of business, as required under Section 16 of the CGST Act. Therefore, Inox Air was required to reverse the ITC claimed on the inputs used in the lost gases, as these inputs did not result in a taxable outward supply, falling under the blocked credit provisions of Section 17(5)(h).
