Duty-free shops at international airports not outside GST ambit: AAR

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New Delhi | Published: April 24, 2018 6:20:47 AM

In what could dent the attraction of duty-free shops at international airports, the Authority of Advanced Ruling (AAR) in Delhi has ruled that a retailer at the Delhi's international airport will have to pay applicable goods and services tax (GST) on sales.

international airports, gst, duty free shops at international airport,  Authority of Advanced Ruling, delhi, gst act, gst councilThe authority held that when goods are exported by air, the export will be completed only when goods cross airspace limits of its territory or territorial waters of India.

In what could dent the attraction of duty-free shops at international airports, the Authority of Advanced Ruling (AAR) in Delhi has ruled that a retailer at the Delhi’s international airport will have to pay applicable goods and services tax (GST) on sales. The AAR said the supply of goods to international passengers by the applicant from its retail outlet situated in the security-hold area may be taking place beyond customs frontiers of India, but the outlet was not “outside India”, and hence cannot be called exports. So, the AAR has ruled that the applicant is required to pay the GST at the applicable rates. Though an AAR ruling under the GST Act is specific to the case, it could set a precedent for courts and eventually could cover all similar cases. Rajat Mohan of AMRG & Associates said duty-free shops are looking at a confrontation with the GST department after this advance ruling as cost of doing business would be much higher.

The authority held that when goods are exported by air, the export will be completed only when goods cross airspace limits of its territory or territorial waters of India. That “export of goods” has been defined under Section 2(5) of the IGST Act, 2017 as taking goods out of India to a place outside India. India is defined under Section 2(56) of the CGST Act, as “India” means the territory of India as referred to in Article 1 of the Constitution, its territorial waters, seabed, and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone.

This situation has arisen due to the definition of exports, but needs to be addressed pragmatically by the GST Council. The objective of exports gets defeated and the consumption-based tax model goes for a toss, Abhishek A Rastogi, partner, Khaitan & Co, said. According to the GST Act, an advance ruling pronounced by AAR is binding only on the applicant who has sought the advance ruling and on the officer concerned or the jurisdictional officer in respect of the applicant. This means that an advance ruling is not applicable to similarly placed other taxable persons in the state. It is only limited to the person who has applied for an advance ruling.

“Duty-free shops at international airports were specifically exempted from levy of VAT under the old regime. However, no exemption has been given under the GST for the goods supplied by these shops. Generally, the goods sold by duty-free shops are luxurious items which are chargeable to tax at high GST rates. These shops attract customers because of lower prices. This ruling is going to impact the foot-fall of these shops if customers don’t get attractive prices,” Shubham Mittal, DGM-GST at Taxmann.com, said.

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