2023 (4) TMI 613 - SC - Service Tax

Duty Free Shops at Airports Exempt from Service Tax on Property Rent, Says Tribunal; Tax Imposition Ruled Unconstitutional.

The CESTAT ruled in favor of the respondent, operating Duty Free Shops at international airports, granting a refund of service tax paid to Mumbai ... Duty free shops beyond the customs frontiers - Transactions deemed to take place outside India for import/export purposes - Constitutional bar on indirect taxation under Article 286 - Entitlement to refund of indirectly levied tax where levy is unconstitutional - No technical or limitation objection to retention of unlawfully levied taxDuty free shops beyond the customs frontiers - Transactions deemed to take place outside India for import/export purposes - Constitutional bar on indirect taxation under Article 286 - Duty free shops situated in international arrival and departure terminals are outside the customs frontiers of India and therefore cannot be subjected to indirect taxation such as service tax. - HELD THAT: - The Court relied on the reasoning in ITDC Ltd - Hotel Ashoka and subsequent executive and judicial decisions to hold that sales from duty free shops, where goods are held in bonded storage and not cleared across customs frontiers, are to be treated as transactions occurring outside the customs frontiers. Applying Article 286 and the legal fiction embodied in relevant customs provisions, the Court concluded that imposition of service tax on such activities lacks lawful authority and is constitutionally impermissible. Having considered consistent orders of High Courts and executive decisions, the Court found no basis to sustain the levy of service tax on duty free shop operations at international airports. [Paras 8, 15]Levy of service tax on duty free shops at international airports is unconstitutional and unsustainable; such shops are to be treated as outside the customs frontiers.Entitlement to refund of indirectly levied tax where levy is unconstitutional - No technical or limitation objection to retention of unlawfully levied tax - Where service tax has been levied contrary to the constitutional and legal position, the affected duty free shops are entitled to refund and such refunds cannot be defeated on technical grounds including limitation. - HELD THAT: - Having held the levy invalid, the Court directed that any tax levied on duty free shop operations cannot be retained and must be refunded. The Court expressly rejected the proposition that technical objections, including limitation, should bar refund where the underlying levy is unconstitutional. The Court also noted the absence of appeals against several consistent decisions and the acceptance of relevant High Court views by the Union, reinforcing the entitlement to refund. [Paras 15]Refund of unlawfully levied service tax in respect of duty free shop operations must be granted; technical objections including limitation are not a bar.Final Conclusion: Civil Appeal dismissed; duty free shops at international airports are outside the customs frontiers and cannot be subjected to service tax, and any service tax levied must be refunded without being defeated on technical or limitation grounds. Issues:The issues involved in the judgment are the claim for refund of service tax in relation to transactions with Mumbai International Airport, the applicability of service tax on renting of immovable property, and the jurisdiction of Duty Free Shops at international airports in relation to customs frontiers.Claim for Refund of Service Tax:The respondent, engaged in running Duty Free Shops at international airports, filed a claim for refund of service tax paid to Mumbai International Airport. The original adjudicating authority rejected the refund claims, stating that the service tax on renting of immovable property was rightly levied and not liable to be refunded. The Commissioner of Appeals also dismissed the appeal. However, the CESTAT allowed the appeal, concluding that Duty Free Shops at international airports operate in a tax exempt environment and the levy of service tax is without lawful authority. The Tribunal relied on legal precedents to support its decision.Applicability of Service Tax on Renting of Immovable Property:The Tribunal considered the legal fiction that transactions outside customs frontiers of India are deemed to have taken place outside India. It referenced a judgment regarding the location of Duty Free Shops at international airports in relation to customs frontiers. The Tribunal held that Duty Free Shops are beyond the customs frontiers of India and cannot be burdened with any indirect tax, deeming any such levy as unconstitutional. Therefore, Duty Free Shops are entitled to a refund of any tax levied without raising technical objections.Jurisdiction of Duty Free Shops at International Airports:The judgment referenced decisions by the Central Government and various High Courts affirming that Duty Free Shops in international arrival or departure terminals are considered to be beyond the customs frontiers of India. The courts held that such shops are not within Indian territory for the purpose of levy and collection of customs duties. The judgment emphasized that any tax levied on Duty Free Shops would be unconstitutional due to their location outside the customs frontiers of India. The court dismissed the appeal, aligning with the legal position established by previous judgments and constitutional provisions.Separate Judgement:No separate judgment was delivered by the judges in this case.