Duty-free shop rent outside taxable territory cannot attract service tax; export-linked refund and rebate conditions may still apply.

Service tax was considered inapplicable to rent for duty-free shops located beyond customs frontiers in non-taxable territory because the service fell outside the taxable territory under the place-of-provision rules and section 66B. Sales from such shops to international passengers were treated as export-related sales for Notification No. 41/2012-ST, and the rental of space had the required nexus with that export activity. On that basis, the notification conditions for rebate or refund were satisfied, and the bar of unjust enrichment did not defeat the refund where tax had been collected on a non-taxable, export-linked service.

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Issues: (i) Whether service tax could lawfully be levied on rent paid for duty-free shops located beyond the customs frontiers and in non-taxable territory. (ii) Whether sales from duty-free shops to international passengers constituted export of goods for the purpose of Notification No. 41/2012-ST dated 29.06.2012. (iii) Whether the conditions of the notification for rebate or refund were satisfied. (iv) Whether the bar of unjust enrichment applied.

Issue (i): Whether service tax could lawfully be levied on rent paid for duty-free shops located beyond the customs frontiers and in non-taxable territory.

Analysis: Article 286 of the Constitution of India prohibits levy on supplies taking place in the course of import or export. The place of provision of services relating to immovable property is the place where the property is located, and the duty-free shops were located beyond customs frontiers in non-taxable territory. Section 66B of the Finance Act, 1994 authorises levy only on services provided in the taxable territory. The rental service for the duty-free shops was therefore outside the taxable territory.

Conclusion: Service tax on the rent was not authorised by law and the collection was without authority of law.

Issue (ii): Whether sales from duty-free shops to international passengers constituted export of goods for the purpose of Notification No. 41/2012-ST dated 29.06.2012.

Analysis: The goods remained under customs control in bonded warehouses and were cleared in terms of the warehousing and export provisions of the Customs Act, 1962. The sales were treated as export sales under the customs regime, and the rental of space had a direct nexus with such export activity. The nature of the transactions at duty-free shops did not displace their treatment as export-related sales for rebate purposes.

Conclusion: The sales were treated as export sales for the purposes of the notification.

Issue (iii): Whether the conditions of the notification for rebate or refund were satisfied.

Analysis: The respondent used the rented space for carrying on duty-free sales, the services were linked to export sales, and the lower authorities had found compliance with the notification conditions. The departmental challenge did not establish any legal infirmity in those findings.

Conclusion: The conditions for rebate or refund under Notification No. 41/2012-ST were satisfied.

Issue (iv): Whether the bar of unjust enrichment applied.

Analysis: Refund was sought in respect of tax collected on a non-taxable service used for export-related activity. In export transactions, the statutory bar of unjust enrichment does not defeat refund where the rebate/refund scheme applies, and the invoices did not show recovery of tax from the foreign passengers in a manner that would justify denial of refund.

Conclusion: The bar of unjust enrichment did not apply.

Final Conclusion: The impugned orders granting refund were sustainable, and the departmental appeals failed.

Ratio Decidendi: Service tax cannot be levied on rental of space for duty-free shops situated in non-taxable territory beyond customs frontiers, and refund of tax paid on such non-taxable services used for export-related sales cannot be denied on the ground of unjust enrichment when the statutory rebate conditions are otherwise fulfilled.

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