Sale of goods by Duty-free shops is to be treated as Export of Goods at International Airport Departure terminal

In case of “Atin Krishna V. Union of India”,at the arrival and departure terminals of international airports the sale or supply of goods at the Duty-Free Shops 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.

Background of the Petition

In the case of Atin Krishna V. Union of India, the Petitioner had filed a petition-

1. To ensure that the provisions of the CGST Act, 2017, Uttar Pradesh GST Act and IGST Act, 2017 are implemented in a proper manner at the Duty-Free Shops which are being operated at Chaudhary Charan Singh International Airport, Lucknow.
2. The Respondent has been operating since 2004 i.e. Having the Duty-Free Shop at Chaudhary Charan Singh International Airport, Lucknow, WHERE
3. The shops should obtain registration under the CGST Act and SGST Act and
4. The business activity of the shops attracts the provisions of the GST Act rather it is being governed under the provisions of the Customs Act, 1962.

Further, the Petitioner contended that the provisions of the abovementioned statutes are being misinterpreted which results in providing various exemptions to the Duty-Free Shops which is causing huge loss to the public interest.

What contentions are raised by the petitioner in the case ‘Atin Krishna V. Union of India’?

The petitioner has raised the following contentions mentioned below-

1. Duty-Free shops liable to pay IGST

Duty-Free Shops are liable to pay IGST on the goods imported into the territory of India.

• Sale by Duty-Free Shops must suffer IGST

The contention of the petitioner was also that the sale by Duty-Free Shops must suffer IGST the moment the goods cross 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.

• Consideration of sale of goods by the Duty-free shops as intra state supply of goods

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.

• To remove the incorrect permit to claim a refund of Input Tax Credit on GST paid

Duty-Free Shops are incorrectly permitted to claim a refund of ITC^[1] (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 the export of goods hence, zero-rated.

The judgment held by the Hon’ble court

In the judgment it was held by the Hon’ble Bench that –

• The supply of goods to and from the Duty-Free Shops do not cross the customs frontier of India, hence as per Section 7(2) of IGST Act, it is to be regarded as a supply of goods in course of inter-state trade or commerce.
• Crossing the custom area includes the area of the customs port, the custom airport or the land customs 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 the customs 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.

As a conclusion, there cannot be an inter-state supply liable to CGST and SGST under Section 9 of the CGST Act and SGCT Act termed as inter-state supply. Therefore, there cannot be an inter-state supply liable to CGST and SGST under Section 9 of the CGST Act and SGCT Act.

• The effective taxable event for the levy of the customs duty is the time when the goods cross the customs barrier and the bill of entry for home consumption is filed.

Hence, the stage for payment of the customs duty or IGST does not arise when the goods are imported from outside India and are kept in the customs warehouse and exported therefrom.

Furthermore, by rejecting the contention of the Petitioner the Hon’ble Bench clarifies that

• 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 the GST Act
• Adding to it, it was further explained that there is no export as the goods do not have a specific destination, as 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.

Conclusively, in reply to one of the contentions raised in a petition, the Hon’ble Bench held that sale or supply of goods falls under export of goods. Therefore, Duty-Free Shops are entitled to claim a 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.