In Atin Krishna V. Union Of India Thru Secy. Ministry of Finance and Others1, 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 tax shall be levied in case of purchase made 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.
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.
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.
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