Duty-free shops at airport security areas must pay GST, not zero-rated as exports under Section 2(5) IGST Act

The AAR held that duty-free shops located in the Security Hold Area of IGI International Airport do not constitute zero-rated supplies under GST law. The Authority determined that goods are considered exported only when they cross India's territorial waters or airspace limits, not merely the customs frontiers. Following SC precedent in Sun Industries, the AAR distinguished Hotel Ashoka case and ruled that since the applicant was not taking goods out of India's territorial boundaries, the supply cannot qualify as export under Section 2(5) of IGST Act, 2017. Therefore, GST at applicable rates must be paid rather than zero-rated treatment.

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Issues Involved:
1. Whether the supply of sunglasses from the applicant's retail outlet at Terminal 3, IGI Airport, New Delhi, to outbound international passengers against a valid international boarding pass is liable to SGST/CGST or is it a zero-rated "export" supply under the IGST Act, 2017Rs.

Issue-wise Detailed Analysis:

1. Applicant's Argument:
The applicant, engaged in the retail sale of sunglasses, operates a retail outlet in the Security Hold Area of Terminal 3, IGI Airport, New Delhi. They argue that sales to international passengers should be considered zero-rated "export" supplies under Section 2(23) read with Section 2(5) of the IGST Act, 2017. They support this by referencing the Central Sales Tax Act, 1956, and the Supreme Court's decision in M/s Hotel Ashoka, which exempted sales from duty-free shops from VAT, considering them as sales beyond the customs frontiers of India.

2. Jurisdictional Officer's Comments:
The Jurisdictional Officer noted that previously, under the DVAT Act, sales from the applicant’s outlet were not exempt from VAT, and exempting them from GST would have financial implications. They suggested inspecting all shops in the duty-free zone to determine the applicability of GST.

3. Relevant Legal Provisions:
- IGST Act, 2017:
- Section 2(5): Defines "export of goods" as taking goods out of India to a place outside India.
- Section 2(23): Defines "zero-rated supply."
- Section 16(1): Specifies that zero-rated supply includes export of goods or services.
- Section 2(4): Defines "customs frontiers of India."

- Customs Act, 1962:
- Section 2(11): Defines "customs area."
- Section 2(18): Defines "export" as taking goods out of India to a place outside India.
- Section 2(27): Defines "India" to include its territorial waters.

- CGST Act, 2017:
- Section 2(56): Defines "India" to include its territorial waters and the air space above its territory and territorial waters.

4. Discussion:
The primary issue is whether the applicant's retail outlet, located in the Security Hold Area of the IGI Airport, is considered outside India for GST purposes. The applicant contends that since the outlet is beyond the customs frontiers of India, sales should be treated as exports. However, the ruling clarifies that under GST, "export" requires taking goods out of India's territorial limits, including its airspace and territorial waters. The Supreme Court's decision in Hotel Ashoka, which exempted duty-free shops from VAT, does not apply here because the GST regime has different definitions and requirements.

5. Ruling:
The supply of goods to international passengers from the applicant's retail outlet in the Security Hold Area of Terminal 3, IGI Airport, New Delhi, is not considered an export. The outlet is within India's territory as defined under the CGST Act, 2017, and the Customs Act, 1962. Therefore, the supply does not qualify as a zero-rated supply under the IGST Act, 2017. The applicant must pay GST at the applicable rates.

Conclusion:
The Authority for Advance Rulings held that the applicant's supply of goods from their retail outlet at Terminal 3, IGI Airport, New Delhi, to international passengers is subject to GST and does not qualify as an export or zero-rated supply.

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