2019 (10) TMI 360 - HC - GST

Duty free shop sales qualify as exports under IGST Act, exempt from GST liability

Sandeep Patil, Flemingo Travel Retail Limited & Anr., Versus Union of India and Others.

Bombay HC ruled in favor of duty free shop operator at airport regarding GST liability. Court held that sales from departure duty free shops constitute ... Levy of GST - Place and time of supply - IGST - validity of SCN - sale of duty free goods from the duty free shops (DFS) at the departure area of airport - Refund of input tax credit - whether the DFSs at MIAL can be saddled with burden of taxes or restrictions despite the provisions of Article 286 of the Constitution of India and the ratio laid down by the Apex Court in the matter of DFSs situated at Bangalore International Airport in the case of Indian Tourist Development Corp. Ltd v. CCT [2012 (2) TMI 62 - SUPREME COURT]? HELD THAT:- In view of Section 5(2) read with Section 19(1) of the Sale of Goods Act, 1930, that the condition of sale/declaration printed on the invoice of DFS, pursuant to signatures by the outbound passenger and cashier, acts as a contract agreeing that the property in the goods purchased from DFS passes to such outbound passenger only when such outbound passenger lands at the final destination. Section 2(5) of the IGST Act defines “export” to mean “taking goods out of India to a place outside India”. In view of the above we are satisfied that supply by the DFS of the Petitioner to the outbound passenger constitutes exports by the DFS. Consequently, in terms of section 16(1) of the IGST Act, it becomes a zero rated supply - the Respondent-Authority has erroneously held that the Petitioner does not satisfy the crucial test of sending of the goods to foreign destination where they would be received as ‘imports’, to deny the benefits of zero rated supply. The import of goods in terms of section 2(10) of the IGST Act means bringing the goods into India from a place outside India. As per Section 7(2) of the IGST Act, goods imported into the territory of India, till such time it crosses the customs frontier of India, shall be treated to be a supply of goods in the course of inter-State trade and commerce. As per Section 2(4) of the IGST Act, the customs frontier of India means the limits of a customs area as defined in section 2 of the Customs Act. The duty free warehouse and DFS of the petitioner are only within the limits of the customs area and therefore, the goods lying therein do not cross the customs frontier and consequently, the importation will continue to be only in the state of inter-State trade and commerce in terms of Section 7(2). The customs duty and IGST is leviable only on removal of warehoused goods from the customs area, which happens when the arriving passengers leave the custom area. Since, the goods sold by DFS to arriving passengers do not leave the customs area, DFS is neither liable to pay customs duty, nor IGST. Significantly, in view of the CGST (Amendment) Act, 2018 effective from 1st February 2019, supply of warehoused goods before clearance for home consumption have been notified/classified under Schedule-III of the CGST Act as activities or transactions, which shall be treated neither as a supply of goods, nor a supply of services. Accordingly, effective from 1st February 2019, sale of goods from arrival DFS falls under entry 8(a) of Schedule-III to CGST/SGST Act. However, Since, supply of goods from departure DFS is “export” and the same is not cleared for home consumption, the same does not fall under Schedule-III of CGST/SGST Act. The impugned show cause notice dated 10th January 2019 are manifestly arbitrary and in the teeth of the purpose and intent of Article 286 of the Constitution of India and the provisions of the GST law read with the Customs Act, 1962 - SCN an order quashed. Regarding refund of ITC - Held that:- we refrain from issuing any declaration since the Petitioner is held to be entitled for refund of ITC and as such no prejudice will be caused to them, if they would first pay GST on the services provided to DFSs by MIAL and take ITC of the entire tax amount, and thereafter claim refund of the same by following the procedure contained in Rule-89. Issues Involved:1. Review of the order passed in Criminal Public Interest Litigation No. 14 of 2019.2. Adjudication order by the Deputy Commissioner of Sales Tax denying refund of input tax credit (ITC) for duty-free shops (DFS) at Mumbai International Airport.3. GST liability on the consideration paid to Mumbai International Airport Ltd (MIAL) under a concession agreement.4. Applicability of Article 286 of the Constitution of India and relevant Supreme Court judgments to the DFSs.5. Eligibility of DFSs for ITC and refund under GST laws.Issue-wise Detailed Analysis:1. Review of the Order in Criminal Public Interest Litigation No. 14 of 2019:The original petitioner sought a review of the order passed on 6th February 2019, which dismissed their PIL. The review was based on an adjudication order by the Deputy Commissioner of Sales Tax denying a refund of ITC for sales from DFSs at the departure area of the airport.2. Adjudication Order by the Deputy Commissioner of Sales Tax:The Petitioners in Writ Petition No. 1511 of 2019 challenged the same adjudication order. The Deputy Commissioner denied the refund of ITC for sales from DFSs, claiming that such sales were not exports and thus not zero-rated supplies under GST laws. The court analyzed the statutory provisions and concluded that sales from DFSs to outbound passengers are exports and thus zero-rated, making the petitioner eligible for ITC refund.3. GST Liability on Consideration Paid to MIAL:Petitioners in Writ Petition No. 1535 of 2019 sought a declaration that the consideration paid to MIAL under a concession agreement was not liable to GST. The court refrained from issuing a declaration but held that the petitioner is entitled to ITC and can claim a refund by following the procedure in Rule 89.4. Applicability of Article 286 and Supreme Court Judgments:The common issue was whether DFSs at MIAL could be taxed despite Article 286 of the Constitution and the Supreme Court's ruling in Indian Tourist Development Corp. Ltd v. CCT. The court held that sales from DFSs to outbound passengers are exports, as the goods are sold before crossing the customs frontiers of India. This position aligns with the Supreme Court's judgment in Hotel Ashoka, which stated that sales at DFSs are outside the customs frontiers and thus not taxable by the state.5. Eligibility for ITC and Refund Under GST Laws:The court found that the petitioner is entitled to ITC on input services used in the course of business. The sales to outbound passengers are zero-rated supplies, making the petitioner eligible for a refund of ITC. The court also noted that the petitioner receives ITC refunds for similar sales at other international airports in India, highlighting the principle of 'One nation, one tax.'Conclusion:The court quashed the impugned order and show cause notices, holding that the sales from DFSs to outbound passengers are exports and thus zero-rated supplies under GST laws. The petitioner is entitled to ITC and refund. The criminal application was dismissed as infructuous, and the request for a stay on the judgment was refused.