International passengers buying goods at airport ‘Duty-Free’ shops here will have to pay GST, with the Authority for Advance Ruling (AAR) saying that such outlets at the Delhi International Airport is not ‘free from duties’ under the Goods and Services Tax regime. In the earlier regime of excise and service tax prior to GST roll out on July 1, 2017, the duty-free shops were exempt from the levy of central sales tax (CST) and value added tax (VAT) as sale from such shops were considered as exports and supplies were taking place beyond the ‘customs frontiers’ of India.
The New Delhi bench of the AAR in a recent ruling has held that the supply of goods to the international passengers going abroad from ‘Duty Free’ shops may be taking place beyond the customs frontiers of India under Integrated GST Act, however, the said shops are within the territory of India under the Central GST Act. The ruling was given by the AAR based on an application filed by Rod Retail Pvt Ltd which runs a retail outlet at Terminal 3 (International Departure), Indira Gandhi International Airport, New Delhi. “The said outlet is not outside India… but the same 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 hence the applicant is not taking goods out of India and hence their supply cannot be called ‘export’ under Section 2(5) of the IGST Act, 2017, or ‘zero rated supply’ under Section 2(23) and Section 16(1) of the IGST Act,2017.
Accordingly, the applicant is required to pay GST at the applicable rates,” the ruling said. AMRG & Associates Partner Rajat Mohan said with AAR deciding that GST would be applicable on ‘Duty-Free’ shops and they will no more be “free from duty” would make such shops uncompetitive via-a-vis those situated outside airport. “This verdict would bring the duty-free shops at par with other shops and eliminating the incentive for such shops to operate beyond the custom stations after paying plump rentals,” Mohan said. EY Partner Abhishek Jain said the AAR has interpreted the scope of “export” in quite an constrictive manner for outbound supplies made by duty free shops. “The AAR has upheld levy of GST on the premise of the said supplies not being taken “outside India” by the duty free shop and accordingly, it not qualifying as export. A narrow interpretation as above would entail increased prices and related uncompetitiveness for duty free shops; who are foreign exchange earners for India,” Jain said. Under section 2(5) of the IGST Act, export of goods takes place only when goods are taken out to a place outside India. India is defined under Section 2(27) of the Customs Act as “India includes the territorial waters of India”.
Under Section 2(56) of the CGST Act, India means the territory of India including its territorial waters and the air space above its territory and territorial waters. Hence, the goods can be said to be exported only when they cross the territorial waters of India and the goods cannot be called to be exported merely on crossing the Customs Frontiers of India, as per the discussions before the AAR.