GST at Duty Free shops: Brief note

Rajdeep Saini

10 Oct, 2020

The Duty-free shops are generally noticed at the departure area of the International airports. They are sort of retails outlets that produce the goods locally and are exempted from the payment of the local taxes. In this system, one condition must be fulfilled that such goods must be sold only to the foreign tourists who will take and use those goods outside India. Since there is a tax exemption applicable to the international passengers they tend to buy goods from the duty free shops at the Airport.

In accordance with the GST Laws^[1], an outgoing international tourist is an individual who is not an ordinary resident of India but comes to India for a stay not exceeding 6 months for the purpose of legitimate non-immigrant purposes.

Landmark judgment on GST at Duty Free Shops

In the matter of Krishna V. Union of India, the Division Bench of Hon’ble High court of Allahabad consist of Justice Pankaj Kumar Jaiswal and Rajnish Kumar have given the clarification that the supply or sale of goods at the Duty Free Shops at the departure and the arrival terminals of the international airports will be considered as exported goods under the customs laws in India and will be regarded as the exported goods under GST Act. Hence, any purchase made from the Duty free shops will not be taxable and no tax shall be levied.

The inverted tax structure of GST at Duty Free Shops

Only the supply which is outward at the duty-free shop will be exempted from tax. However, these shops must have to pay the GST on the inward supply of these goods. It further creates an inverted tax structure. This type of structure occurs when the rate of tax in the inward supply is more than the tax rate of the outward supply.

For Instance, if the duty-free store at the airport sells the handbag made of fabric at Rs. 1500 (without GST Tax) to a foreign passenger. However, if the person has bought the same bag from the wholesaler then the price will be Rs. 1000 which includes 5% GST. In this case, he only pays GST on the inward supply only, but there will be a tax exempt on the outward supply. In accordance with the notification no. 31/2019 issued by the government, a tax payer can claim a refund of the Goods and Services Tax paid on the inward supplies.

Refund of GST at the duty free shops accumulated ITC

Under the GST law, a registered tax payer will be eligible to get a refund of the unutilised Input Tax Credit (ITC) on the basis of an Inverted tax structure. All the details which are required to be fulfilled to claim the GST and procedure which are required to be fulfilled are mentioned under the sections of GST law.

Conditions to be fulfilled for a refund of GST at duty free shops

A retail outlet which is situated at the departure area of an International airport can declare the refund of the GST which was paid for the purchases of goods only if the below mentioned conditions are fulfilled:

1. The products which are supplied must be domestically produced and should be ingenious.
2. Where the inward supplies are received from the tax payer who must be registered against a tax invoice.
3. If at any time where goods are being sold to the outgoing foreign tourist without charging any tax and further sold against foreign exchange.
4. The GSTIN and the name of the retail outlets are cited in the tax invoice of the Inward supply.
5. Any other conditions which may be specified from time to time.

Procedure to claim refund GST at duty free shops

A duty free shop is eligible to claim the refunds of the accumulated ITC by registering the form GST RFD- 10B on a quarterly and monthly basis solely dependent on the frequency of furnishing GSTR – 1 at the retail outlets.

The following procedure to claim the refund:

1. The first step will be to log in to the GST Portal.
2. After that, Go to Service -> Return Dashboard -> File Return.
3. After that click the search button to generate GST RFD – 10B.
4. All the necessary details to be fulfilled like name, address, GSTIN, amount of refund claim and the tax period. Moreover, the details of the supplies should be provided and its refund.
5. All the bank details including the name of the bank, type of bank account, address of the bank, MICR code, IFSC code, etc to receive a refund.
6. Then the declaration should be check marked and further submit after attaching the certified signatory.

On the successful submission, the system will further generate the ARN, after that the message of confirmation will pop up. The tax payer can check their refund status by using the track application under the refund tabs.

GST at Duty Free Shops: The Conclusion

Read our article:Anti-Profiteering Provisions Under the GST Law