GST leviable on Supply of Goods and Services to Duty Free Shops at International Airports in India: Madhya Pradesh HC [Read Order]

Benami Properties - Madhya Prasesh - HC - Taxscan

A two-judge bench of the Madhya Pradesh High Court has held that no GST exemption can be given to the goods and services supplied to the Duty-Free Shops at International Airports in India.

The petitioner, a manufacturer, and exporter of garments in India and specializes in the manufacturing of high-quality products for children with the customer base in the Middle East, South Africa, and the USA, intends to supply goods to Duty-Free Shops (DFSs) situated in the duty-free area at international airports.

The petitioner claimed that the benefit available to him under the erstwhile central excise regime of removing goods from his factory to DFS located in the international airports without payment of duty is not available to him under the GST regime.

The bench comprising Justices SC Sharma and Virender Singh observed that under the IGST Act, 2017 a Duty-Free Shop situated at the airport cannot be treated as territory out of India. The petitioner is not exporting the goods out of India. He is selling to a supplier, who is within India and the point of sale is also at Indore as the petitioner is receiving the price of goods at Indore.

The bench noted that for the purpose of CGST Act, India extends up to the Exclusive Economic Zone up to 200 nautical miles from the baseline.

It was held that “The location of the DFS, whether within customs frontier or beyond, shall be within India as long as it is not beyond EEZ (200 nautical miles). Therefore, DFS cannot be said to be located outside India. Instead, the DFS is located within India. As the supply to a DFS by an Indian supplier is not to ‘a place outside India’, therefore, such supplies do not qualify as ‘export of goods’ under GST. Consequently, such supplies cannot be made without payment of duty by furnishing a bond/letter of undertaking (LUT) under rule 96-A of the CGST Rules, 2017. Also, he cannot claim the refund of an unutilized input tax credit (ITC) under Section 54 of the CGST Act, 2017.”

“The petitioner cannot escape the liability to pay GST. He is manufacturing certain goods and supplying to a person, who is having a Duty Free Shop. It is true that we cannot export our taxes but the facts remain that it is not the petitioner, who is exporting the goods or taking goods out of India. He is selling to a person, who is having Duty Free Shop (to a Duty Free Operator), which is located in India as per the definition clause as contained under the GST Act. In light of the aforesaid, this Court does not find any reason to issue the writ of mandamus directing the respondents not to charge GST on the petitioner or to legislate on the subject granting exemptions as prayed by the petitioner,” the bench said.

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