A law can be considered reasonable only when, shorn of its technicalities, it makes sense to even a layman. That is why, the latest ruling of the Authority for Advance Rulings (AAR) in the case of duty-free shops makes little sense and seems to make a mockery of the GST law. The general principle of taxation, the world over as well as in India, is that taxes are never exported. So, if any input is used for making a good for exports, the taxes paid on that are to be rebated. Shockingly, the AAR has just ruled that sunglasses sold at an outlet—to people leaving India, against valid passports/tickets—in the Delhi International Airport Limited (DIAL) are not exempt from GST even while, under the pre-GST regime, these were exempt from VAT on grounds that they were, in a sense, exports.
Indeed, the AAR ruling talks of this. It says that the issue of whether duty-free shops should pay sales tax had arisen in the case of the Ashoka Hotel and that the matter was decided by the Supreme Court in 2012. The Supreme Court ruled that since the duty-free shops were located in a zone that is entered by crossing the customs frontier of India, they were exempt from sales taxes. Having given this background, the AAR then proceeds to explain why this ruling cannot apply to sales in a duty-free shop under the GST regime. “No doubt,” the AAR says, “the duty-free shops may be established beyond the Customs Frontiers of India … however, the issue in the present case is whether the said duty-free shops are outside India, i.e., whether they are ‘beyond airspace or territorial waters of India’.”
Under the GST law, AAR says, all transactions that are within the “territorial waters of India” are to the taxed and, in this case, while the sales “may be taking place beyond Customs Frontiers of India … the said outlet is not outside India as claimed by the applicant, but the same is within the territory of India.” Certainly, the affected duty-free shop will appeal the verdict but, in this case, even the GST Council would do well to implead itself in the matter given how ridiculous the argument being made is and how, in time, the judgment could even be interpreted in an adverse manner in other cases as well.