Madras HC Upholds GST Exemption on Revenue Share for Duty-Free Shops at Airport as Zero-Rated Supply
The Madras High Court held that GST cannot be levied on revenue share paid by duty-free shops at airports, treating such supplies as zero-rated and revenue-neutral.
In a recent ruling, the Madras High Court held that the levy of GST on revenue share or minimum guarantee amounts paid by duty-free shop operators at airports is not valid under GST law, as such supplies qualify as zero-rated under the Integrated Goods and Services Tax (IGST) Act.
Flemingo Duty Free Shop Private Limited, the respondent, operates duty-free outlets at Chennai International Airport under a concession agreement with the Airports Authority of India. The dispute arose when the Airports Authority raised invoices including GST on the concession fee paid by the respondent.
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The petitioner’s counsel argued that such a levy was unlawful, arguing that duty-free shops operate outside the customs frontiers of India and that the supplies made by them are zero-rated under Section 16 of the IGST Act.
After initially paying GST under protest, the respondent approached the Madras High Court and obtained an interim stay. A learned single judge subsequently ruled that the GST department should not insist on payment of tax where it would immediately be followed by a refund, deeming the entire exercise revenue neutral. The single judge directed that for the period prior to April 2021, no GST need be paid, and from April 2021 onward, the respondent must pay GST and claim a refund under Section 54 of the CGST Act.
The Union of India filed a writ appeal, arguing that revenue neutrality cannot override statutory provisions requiring payment of tax, followed by a refund claim. The government's counsel argued that even in the case of zero-rated supplies, the law mandates a tax payment before seeking a refund.
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The respondent’s counsel argued that the tax had not been passed on to them in many cases and that the refund process would only create procedural complications without any gain to the exchequer. They also pointed out that the Airports Authority had itself applied for a refund of the GST it had paid earlier without recovering it from the respondent.
A division bench comprising Chief Justice K.R. Shriram and Justice Mohammed Shaffiq held that the supplies in question were indeed zero-rated and that the Union of India did not dispute this. The court referred to Supreme Court rulings, which stated that appeals need not be filed where the issue is revenue-neutral. The court ruled that there was no reason to interfere with the single judge’s ruling, especially when the government had not demonstrated any actual loss of revenue.
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The court clarified that authorities are free to examine whether the transactions were genuinely revenue-neutral for the period before April 2021 and take action as per law if not. The direction requiring payment of GST with refund claims from April 2021 onwards was left undisturbed. The Airports Authority’s refund application was directed to be processed within four weeks, along with applicable interest. The writ appeal was dismissed.
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