Sunglasses sold to international passengers at airport security area not zero-rated exports under IGST Act 2017

The AAAR Delhi held that sales of sunglasses from a retail outlet at Terminal-3 IGI Airport's Security Hold Area to outbound international passengers are not zero-rated export supplies under IGST Act 2017. The transactions fall within India's taxable territory as defined under CGST Act 2017, constituting taxable supply attracting CGST and SGST. Although Section 15 of IGST Act provides for refund to tourists, it remains non-operational. The appeal was dismissed.

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Issues Involved:
1. Whether the supply of sunglasses from the retail outlet at Terminal-3, IGI Airport, New Delhi to outbound international passengers is liable to SGST/CGST or is it a zero-rated "export" supply under the IGST Act, 2017.
2. Whether the location of the retail outlet in the Security Hold Area of the International departure is outside India though geographically within the territory of India.

Issue-wise Detailed Analysis:

1. Liability of SGST/CGST or Zero-rated "Export" Supply:

The appellant operates a retail outlet in the Security Hold Area (SHA) of Terminal-3, IGI Airport, New Delhi, selling sunglasses to international passengers. The appellant contends that these sales should be considered zero-rated "export" supplies under Section 2(23) read with Section 2(5) of the IGST Act, 2017, arguing that the SHA is beyond the Customs Frontiers of India. The AAR, however, ruled that the outlet is within the territory of India as defined under Section 2(56) of the CGST Act, 2017 and Section 2(27) of the Customs Act, 1962, and therefore, the supply does not qualify as an "export" under Section 2(5) of the IGST Act, 2017. Consequently, the appellant is required to pay GST at the applicable rates.

2. Location of the Retail Outlet and its Implications:

The appellant argued that the SHA, being beyond the Customs Frontiers of India, should be considered outside India for tax purposes. They cited judicial precedents and interpretations, including the Supreme Court's decision in the case of State of Madras Vs Daver & Co., which led to the amendment defining "Crossing the Customs frontiers of India" in the CST Act. The appellant emphasized that the SHA's restricted access and the fact that goods are supplied only to international passengers with valid boarding passes substantiate the claim that these goods are taken out of India. However, the AAR concluded that the SHA is within India as per the definitions in the CGST Act and Customs Act, and thus, the transactions do not qualify as exports.

Discussion and Findings:

The appellate authority examined the definitions under the IGST Act, CGST Act, and Customs Act, noting that "export of goods" means taking goods out of India to a place outside India. The SHA, where the appellant's shop is located, falls within the definition of "India" under Section 2(56) of the CGST Act and Section 2(27) of the Customs Act. Therefore, the sales from the SHA do not constitute "export of goods" or "zero-rated supply" as per Section 16 of the IGST Act. The authority also referenced the Nagpur Bench of the Bombay High Court's judgment in A1 Cuisines Private Limited Vs. Union Of India, which distinguished between duty-free shops post-immigration and other shops within the airport, reinforcing that the appellant's transactions are taxable.

Conclusion:

The appellate authority upheld the AAR's ruling, affirming that the appellant's sales to outbound international passengers from the SHA are subject to GST and do not qualify as zero-rated "export" supplies. The appeal was dismissed as devoid of merits, reiterating that the transactions fall within the taxable territory and attract applicable GST.

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