Ruling: Duty-Free Shops exempt from GST laws for export sales, allowed Input Tax Credit refunds

The court allowed the claims for Input Tax Credit (ITC) refunds and ruled that GST laws do not apply to Duty-Free Shops (DFSs) at airports for sales considered as exports. The court emphasized that transactions at DFSs are beyond India's customs frontiers and directed petitioners to follow the prescribed procedure for claiming ITC refunds under the Central Goods and Services Tax Act, 2017.

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Issues Involved:
1. Rejection of refund of Input Tax Credit (ITC).
2. Applicability of GST laws to Duty-Free Shops (DFSs) at airports.
3. Non-applicability of Central Goods and Service Tax Act, 2017, Integrated Goods and Service Tax Act, 2017, and Kerala State Goods and Service Tax Act, 2017 to DFSs.
4. Quashing of orders rejecting previously granted refunds.

Issue-wise Detailed Analysis:

1. Rejection of Refund of Input Tax Credit (ITC):
In writ petitions Nos. 12278, 12279, 12280, 12274, and 12317 of 2020, the petitioners challenged the rejection of their ITC refund claims for various periods despite earlier approvals. The court referenced the Bombay High Court’s decision in Sandeep Patil and others Vs. Union of India and others, which ruled in favor of the assessee, stating that owners of DFSs are not liable to pay customs duty or IGST. The court held that the assessee is entitled to a refund of ITC, following the procedure in Rule 89 of the Central Goods and Services Tax Rules, 2017.

2. Applicability of GST Laws to Duty-Free Shops (DFSs) at Airports:
In W.P.(C) No. 6850 of 2018, the petitioner sought a declaration that the Central Goods and Service Tax Act, 2017, the Integrated Goods and Service Tax Act, 2017, and the Kerala State Goods and Service Tax Act, 2017 do not apply to the supply of goods and services at DFSs at Calicut International Airport. The court noted that DFSs are licensed under Sections 58 and 58A of the Customs Act, 1962, and goods sold at DFSs do not attract customs duty. The court cited the Sandeep Patil case, which concluded that sales at DFSs are considered exports and thus zero-rated under GST laws.

3. Non-applicability of Central Goods and Service Tax Act, 2017, Integrated Goods and Service Tax Act, 2017, and Kerala State Goods and Service Tax Act, 2017 to DFSs:
The court addressed the petitioner’s argument that transactions at DFSs qualify as exports under Section 69 of the Customs Act, 1962. It was argued that the activities at DFSs are beyond the customs frontiers of India, and thus, not subject to GST. The court agreed, referencing the judgment in Sandeep Patil’s case, which treated sales from DFSs as exports, making them zero-rated supplies eligible for ITC refund.

4. Quashing of Orders Rejecting Previously Granted Refunds:
In W.P.(C) No. 13237 of 2020, the petitioner sought to quash orders rejecting previously granted refunds. The court found that the rejection was arbitrary and discriminatory, especially since similar refunds were processed and allowed in other states. The court reiterated that sales at DFSs are exports and thus zero-rated, entitling the petitioner to ITC refunds.

Conclusion:
The court set aside the impugned orders in all writ petitions, allowing the claims for ITC refunds and ruling that GST laws do not apply to DFSs at airports for sales considered as exports. The court emphasized that the transactions at DFSs are beyond the customs frontiers of India and thus not subject to GST. The court directed the petitioners to follow the procedure under Section 54(3) of the Central Goods and Services Tax Act, 2017, and the corresponding rules for claiming ITC refunds.

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