No GST at Duty Free Shops: Allahabad HC
In Atin Krishna V. Union Of India Thru Secy. Ministry of Finance and Others[1], the Division Bench of Hon’ble Allahabad High Court comprising of Justice Pankaj Kumar Jaiswal and Justice Rajnish Kumar has clarified that the sale or supply of goods at the Duty Free Shops at the arrival and departure terminals of international airports would be considered as export of goods under Customs Law and would also be considered as export of goods under GST Act, hence, no GST at Duty Free Shops or no tax shall be levied in case of purchase made at Duty Free Shops.
Background – No GST at Duty Free Shops
The Petitioner had filed a petition
in public interest praying before the Hon’ble Court to ensure that the
provisions of the CGST Act, 2017, Uttar Pradesh GST Act and IGST Act, 2017 are
implemented in proper manner qua the Duty Free Shops which are being operated
at Chaudhary Charan Singh International Airport, Lucknow. The Petitioner
contended that the Respondent No. 3 i.e. the Duty Free Shop at Chaudhary Charan
Singh International Airport, Lucknow has been operating since 2004, and the
shops are being governed under the provisions of the Customs Act, 1962, whereas
the shops should obtain registration under CGST Act and SGST Act and the
business activity of the shops attracts the provisions of the GST Act. The
Petitioner further contended that the provisions of the abovementioned statutes
are being misinterpreted resulting in providing various exemptions to the Duty
Free Shops which is causing huge loss to the public exchequer.
Petitioner’s Contentions
Contentions raised by the Petitioner
are as follows:
- Duty
Free Shops are liable to pay IGST on the goods imported into the territory of
India. - Sale
of goods by the Duty Free Shops to international passengers at arrival
terminals should be considered as intra state supply of goods and applicable
taxes under Section 9 (1) of CGST Act and SGST Act should be charged on such
sale. - Duty
Free Shops are incorrectly permitted to claim refund of Input Tax Credit on GST
paid on service of renting of immovable property by Airport Authority of India
and procurement of domestic goods and services because such refund is granted
when sale made to international passengers at departure terminal is export of
goods hence, zero rated. - The
Petitioner also contended that the a sale by Duty Free Shops must suffer IGST
the moment the goods crosses the territorial waters of India, therefore such
supply of goods by Duty Free Shops must be subjected to tax under Section 5 of
IGST Act.
Judgment – No GST at Duty Free Shops
The Hon’ble Bench held that the
supply of goods to and from the Duty Free Shops do not cross the custom
frontier of India, hence as per Section 7(2) of IGST Act, it is to be regarded
as supply of goods in course of inter-state trade or commerce. The Hon’ble
Court has further observed that crossing the custom area includes the area of
custom port, custom airport or land custom station or a warehouse and also the
area where the imported goods are ordinarily kept before clearance by custom
authority. The Duty Free Shops at the airport are part of custom area as denied
under Section 2 (11) of Customs Act, hence the supplies of goods made by them
will be termed as inter-state supply. Thus, there cannot be an inter-state
supply liable to CGST and SGST under Section 9 of the CGST Act and SGCT Act.
The Hon’ble Court has further observed that effective taxable event for the
purpose of levy of custom duty is the time when the goods cross the custom
barrier and the bill of entry for home consumption is filed. Hence, when the
goods are imported from outside India and are kept in customs warehouse and
exported therefrom, the stage for payment of custom duty or IGST does not
arise.
In the situation, when an arriving
passenger purchases goods from a Duty Free Shops at the arrival terminal of an
airport, the supply of goods takes place before clearance for home consumption.
After the goods are supplied, the passenger crosses the custom frontier at the
airport with the supplied goods and then clears the same for home consumption.
Hence, the goods are cleared by passengers for home consumption under Baggage
Rule, 2016 and not by Duty Free Shops. Thus no custom duty is payable by the
Duty Free Shops and the passengers are liable to pay the applicable custom
duties.
The Hon’ble Bench further held that
the sale or supply of goods to departing international passengers are not
cleared for home consumption and therefore, will not attract GST. The sale or
supply of goods by the Duty Free Shops of international departure terminal
would be considered as export under the Customs Law and thus would also be
considered as export of goods under GST Act. It has also been held by the
Hon’ble Bench that the invoice which is issued to the passengers after the sale
of the goods would deem to be “shipping bill” for the purpose of export under
Section 69 of Customs Act. Rejecting the contention of the Petitioner that
there is no export as the goods do not have a specific destination, the Hon’ble
Court also held that the destination for export would be the foreign country
where the passenger is going and the passengers would act as the carrier of the
goods.
The Hon’ble Court has further held
that sale or supply of goods falls under
export of goods and export of goods is a zero-rated supply and person making
zero-rated supply is entitled to claim refund of Input Tax Credit under Section
16(1) and (3) of IGST Act. Therefore, Duty Free Shops are entitled to claim
refund of Input Tax Credit on GST paid on service of renting of immovable
property by Airport Authority of India and procurement of domestic goods and
services.
Contributed By – Pathik Choudhury
Designation – Associate
[1] P.I.L. Civil No. 12929 of 2019
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