In a significant judgement, the Bombay High Court has held that Goods and Services Tax cannot be levied on the Duty-Free Shop(DFS) at Mumbai airport for goods sold to outgoing passengers. The Court held that such shops are entitled to refund of input tax credit.
A Division bench of Justice Ranjit More and Justice Bharati Dangre noted that duty free shops are within the limits of customs area. Therefore, supply of imported goods to and from the DFS did not cross the customs frontier of India. Therefore, supply by the DFS to outbound passengers constitutes "export". Consequently, in terms of section 16(1) of the IGST Act, it becomes a zero-rated supply.
The petitioner, Flemingo Travel Retail Ltd, runs the duty-free shop (DFS) at Mumbai International Airport. They took exception to an order of a Deputy Commissioner of Sales Tax wherein he denied refund of input tax credit pursuant to sale of duty-free goods from the duty-free shops at the departure area of airport.
According to the petitioner, they were already paying Mumbai International Airport (MIAL) under a concession agreement towards the minimum guaranteed fees/ concession fees for grant of rights and use of licensed premises of duty-free shops in the departure or arrival area of international airport. Therefore, they are not liable to pay GST.
Whereas, as per the State and the respondent authorities, the nomenclature 'Duty-Free Shop' does not entitle the petitioner to be free from entire indirect tax burden under every law. The input tax credit is restricted to the tax borne by the petitioner only on the value of goods supplied, and other GST paid on services cannot be allowed to be given as input tax credit qualifying for refund. The import of goods for sale at DFS may not attract customs duty since the same is not at all cleared for home consumption, but that does not mean that the same are not liable to GST, respondents argued.
Why Duty Free Shops Are Exempted From GST? Allahabad HC Explains [Read Judgment]
Court examined Article 286 of the constitution which deals with restrictions regarding imposition of tax on the sale or purchase of goods. The bench noted-
"The supply made in the course of import into India or in the course of export out of India, cannot be subjected to any tax."
Court referred to the judgement of constitution bench of the Supreme Court in J. V. Gokal & Co. vs CST and how the same was followed by the apex court in India Tourist Development Corpn. Ltd. Through Hotel Ashoka v. CCT and observed-
"The Respondents have made an attempt to distinguish all the judgments and orders which are passed from time to time in favour of the Petitioner-DFS by various forums, by contending that the same are not concerning the GST laws. In our view, such approach of the Respondents appears to be ex-facie erroneous, more so when the judgments on which the Respondents seek to rely, are neither of the GST regime, nor passed in the matters of duty-free shops situated at the arrival or departure area of international airports."
The bench noted that none of the decisions relied upon by the respondents, pertain to Duty Free Shops.
Thereafter, Court observed-
"Section 2(5) of the IGST Act defines "export" to mean "taking goods out of India to a place outside India". In view of the above we are satisfied that supply by the DFS of the Petitioner to the outbound passenger constitutes exports by the DFS. Consequently, in terms of section 16(1) of the IGST Act, it becomes a zero-rated supply.
In our view, the Respondent-Authority has erroneously held that the Petitioner does not satisfy the crucial test of sending of the goods to foreign destination where they would be received as 'imports', to deny the benefits of zero-rated supply."
Moreover, it was pointed out on behalf of the petitioner, that they are getting refund of Input Tax Credit pursuant to sales from their other duty-free shops in the departure area of other international airports within India. Court said-
"The said contention was not disputed by the Respondents. The GST regime is based on "One nation, one tax theory". The authorities in the State of Maharashtra cannot give a discriminatory treatment, particularly when the refund has been and is being granted in several other States."
Thus, holding the order of the Deputy Commissioner of Sales Tax as arbitrary, Court quashed it and allowed Flemingo's writ petition.
The Allahabad High Court had also recently ruled that duty free shops are exempted from GST.
Click here to download judgment