The Authority for Advance Ruling (AAR) has mandated International Passengers to pay GST on Goods purchased from shops within the Airports premises. Earlier the shops popularly known as ‘Duty-Free‘ shops were exempt from any form of tax. The AAR while hearing to a plea filed by Rod Retail Pvt Ltd which owns a retail outlet at Terminal 3 (International Departure), Indira Gandhi International Airport, New Delhi noted that Central GST was still applicable on the goods purchased by international travellers from the so-called ‘Duty-free’ shops. As per Authority for Advance Rulings although ‘Duty-Free’ shops do not fall within the frontier of the customs they are still in Indian Territory and this makes them liable for Central GST.
The ACTS
- As per section 2 (5) of the IGST Act, goods are taken out to a place outside India are considered as exports. The Section 2(27) of the Customs Act says “India includes the territorial waters of India”.
- As per Section 2 (56) of the CGST Act, India means the territory of India including its territorial waters as well as the airspace above its territory.
The AAR noted that the outlets in question are not outside India as per the section 2(56) of the CGST Act,2017 and section 2(27) of the Customs Act, 1962. Hence, the applicant (in this case Rod Retail Pvt Ltd) is not taking goods outside the Indian Territory. This means that the supplies cannot be categorized as ‘exports’ under Section 2(5) of the IGST Act, 2017, or ‘zero-rated supply’ under Section 2(23) and Section 16(1) of the IGST Act,2017. This brings the supplies within the GST ambit. Hence the applicant is liable to pay GST.
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During the pre-GST era, the duty-free shops were exempt from the levy of central sales tax (CST) and value-added tax (VAT) as the sale from such shops were considered as exports and supplies were taking place beyond the ‘customs frontiers’ of India.
As per experts, the AAR’s interpretation of the scope of export is both constructive and clever. In the words of EY Partner Abhishek Jain “The AAR has interpreted the scope of “export” in quite a constructive manner for outbound supplies made by duty-free shops. The AAR has upheld levy of GST on the premise of the said supplies not being taken “outside India” by the duty-free shop and accordingly, it not qualifying as export.”
After Effect of the AAR Verdict
GST levied on the duty-free shops within the Airport’s premises will trigger increase price which will take away the competitive advantage held by such shops over the years. The dent in foreign exchange earned via such shops could be a case for reconsidering the plea for AAR.
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The ruling brings the shops outside on the same playing ground with those on the inside. However, the huge rental charged by airport authorities from the owners of the duty-free shops operated beyond the customs stations must also be re-adjusted to ensure fair a competitive environment for the owners of such shops.
Finally Cleared: No GST on Duty-Free Shops
After a lot of rumours and even pressurized media attention, there is a good announcement for all the duty-free shops situated at the airports. According to the latest announcements, the AAR rulings has been turned out and the GST implication over the duty-free shops has been ruled out.
The reason being sorted out that the duty-free shops are already under heavy pressure of expense they bear and after the application of GST, will further make sales to decline.
Duty-free shops are away from the central sales tax and VAT as the sales were considered as exports. Authority for advance ruling earlier said that the duty-free shops are inside the country so the goods purchased by the travellers is liable for the GST.
