The Bombay High Court has ruled that, Goods and Services Tax (GST) is not applicable on the Duty-Free Shop (DFS) at Mumbai International Airport for goods sold to outgoing passengers.
The Petitioners has sought a declaration that the consideration being paid by it to Mumbai International Airport Ltd (MIAL) under a concession agreement dated 17th February 2014 towards the minimum guaranteed fees/ concession fees for grant of rights and use of licensed premises of duty free shops in the departure or arrival area of international airport, is not liable to GST and hence the MIAL is not entitled to collect GST from the Petitioner.
The Petitioner in DFSs sells goods to international passengers, who are either leaving India (departing passengers) or arriving into India (arriving passengers). The goods – generally chocolates, perfumes, cosmetics, cigarettes, alcohol etc. are primarily imported or occasionally procured from SEZ units in India (hereinafter collectively referred to as ‘the warehoused goods’). However, the bulk of the sales (almost 98%) are of the imported/warehoused goods, before they cross customs frontiers or barriers. Further goods procured from the domestic market were never sold to the arriving passengers.
The DFSs also receive various input services such as leave and licence arrangements of areas/space, maintenance services, CHA services, professional services, etc., from different service providers located inside or outside the DFS area.
The petitioner submitted that, the provisions of CGST Act, MGST Act and IGST Act do not provide that supply in the area beyond custom frontiers are not liable for GST or are ‘export’. The relevance of custom frontier is different in GST law. Section 7(2) provides that such supply shall be inter-state supply liable to IGST.
The Petitioner also contended that nomenclature Duty-Free Shop does not entitle the Petitioner to be free from the entire indirect tax burden under every law. The input tax credit is restricted to the tax borne by the Petitioner only on the value of goods supplied, and other GST paid on services can not be allowed to be given as input tax credit qualifying for a refund. The import of goods for sale at DFS may not attract customs duty since the same is not at all cleared for home consumption, but that does not mean that the same is not liable to GST.
While allowing the petition, the division bench comprising of Justice Bharati H. Dangre and Justice Ranjit More observed that, “We find sufficient merit in the submissions of the petitioner that import of goods in terms of section 2(10) of the IGST Act means bringing the goods into India from a place outside India. As per Section 7(2) of the IGST Act, goods imported into the territory of India, till such time it crosses the customs frontier of India, shall be treated to be a supply of goods in the course of inter-State trade and commerce. As per Section 2(4) of the IGST Act, the customs frontier of India means the limits of a customs area as defined in section 2 of the Customs Act. The duty-free warehouse and DFS of the petitioner are only within the limits of the customs area and therefore, the goods lying therein do not cross the customs frontier and consequently, the importation will continue to be only in the state of inter-State trade and commerce in terms of Section 7(2)”.
The Court also said that, “petitioner only files the bill of entry for warehousing. No liability under section 12 read with section 3(12) of the Customs Tariff Act would get triggered at all by filing the bill of entry for warehousing. The customs duty and IGST is leviable only on removal of warehoused goods from the customs area, which happens when the arriving passengers leave the customs area. Since the goods sold by DFS to arriving passengers do not leave the customs area, DFS is neither liable to pay customs duty nor IGST”.
“After the introduction of GST, the sales to arriving passengers continue to be sales in and/or from the customs area, as at the point of sale in DFS, the goods have neither crossed the customs frontier nor have they been cleared for home consumption by DFS. Accordingly, neither customs duty, nor Integrated Tax, is payable by DFS”, the Court also added.
Quashing the show cause notices the Court also said that, “Arriving passenger’s baggage is exempt from the integrated tax in view of the Customs Notification No. 43/2017-Cus dated 30th June 2017 and IGST Notification No. 2/2017 IGST (rate) dated 28th June 2017. In view of the above exemption read with the duty-free allowance available under the Baggage Rules applicable to arriving passengers, neither customs duty (up to the permitted baggage allowance) nor IGST is levied on such goods. Such import of goods by arriving passengers across the custom frontier as passenger baggage is, therefore, an exempt supply under the GST, hence no IGST is payable by either the DFS on its imports, or on supply to arriving passengers. The arriving passengers are also not required to pay any IGST on crossing the customs frontiers, in view of the above exemption read with the duty-free allowance under the Baggage Rules”.
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