Supreme Court Recalls Judgment Exempting Service Tax on Duty-Free Shops at Airports [Read Order]

The Supreme Court of India in its recent judgement has recalled its Division Bench judgment, which by ruled that Duty-Free Shops situated in the arrival or departure terminals of Airports are outside the customs frontiers of India and therefore, they cannot be saddled with any indirect taxes like the Service Tax.

The union government filed the appeal against an order dated 10 February 2022 of the Customs, Excise and Service Tax Appellate Tribunal1 at Mumbai. The CESTAT allowed an appeal instituted by Flemingo Travel Retail Ltd,  the respondent for a refund of service tax about a rental transaction with the Mumbai International Airport Limited for the period 1 October 2011 to 30 June 2017.

The respondent engaged in the business of conducting duty-free shops at the arrival and departure terminals at the international airports in Mumbai and Delhi. The respondent filed an application claiming a refund of service tax paid in respect of the charges levied by Mumbai International Airport for the period in question based on the notification dated 29 June 2012 of the Union government in the Ministry of Finance. 

The adjudicating authority rejected the refund claimed on the ground that the payment of service tax on renting of immovable property of the duty-free shops was not liable to be refunded in terms of the provisions of the Finance Act 1994.  The order was affirmed by the Commissioner (Appeals). 

In appeal, the CESTAT concluded that the duty-free shops situated at international airports constitute a global market competing in a tax-exempt environment and the levy of service tax was bereft of lawful authority. 

The Union Government submitted that the position it obtains about goods is distinct from the applicable statutory regime in respect of services.  On judgment dated 10 April 2023, the Court affirmed the judgment of the CESTAT noting that against a judgment of the High Court of Judicature at Bombay dated 28 November 2018 in Al Cuisine Pvt Ltd v Union of India, a Special Leave Petition was dismissed by an order dated 14 December 2018 of the Court.

The bench comprising Chief Justice of India Dr DY Chandrachud, Justices Sanjay Karol and Manoj Misra allowed the review by recalling the judgment dated 10 April 2023.

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