Seeking the sudden action on the announcement of levy of Goods and Services from ‘duty-free’ vendors at airports for international passengers from Authority for Advance Ruling (AAR), New Delhi in March 2018. The revenue department will inform about the exemption on the matter soon, as notified by the officials.
An official mentioned, “The position of the revenue department has always been that we cannot export our taxes. We will issue a clarification stating that duty-free shops would not levy GST.” The revenue department will announce that first, duty-free vendors will gather a passport copy of the passenger buying the goods and then ask the government to refund GST back.
In the same way to exporters, the duty-free shops can as well claim a refund for the sold out products including GST from the government as paid in obtaining and maintaining the goods from manufacturers. Here, passport copy of international buyer will work as the proof of goods sale. In previous indirect tax regime, these shops were away from value-added tax (VAT) and central sales tax (CST) levy. Previously, the sale of duty-free shops came under the export and supplies had been reaching out of India from the ‘customs frontiers’.
Rajat Mohan, Partner, AMRG & Associates mentioned Duty-free shops attract a tax neutral status internationally in a seek of International understanding. He further said, “The GST policy wing is planning to come out with a circular clarifying on the zero-rating status of such Duty-Free shops and circular may also outlay a detailed procedure of claiming a refund of the taxes so paid.”
An accounting firm partner mentioned that the transactions are subject to exports and as per the derived policy, the tax is not applicable to export of goods. He said, “This would bring a lot of relief to duty-free shops and would keep them competitive with duty-free shops in other countries.”
The AAR explained that the international passenger purchasing goods from ‘duty-free’ shops and taking it to abroad and all process happening under the Central GST Act and within Indian territory. The duty free shops are in the boundary of Indian territory and the goods are not moving out of India, therefore we couldn’t consider it export in the ambit of Section 2(5) of the IGST Act, 2017, or namely ‘zero-rated supply’ mentioned in Section 16(1) and Section 2(23) of the IGST Act,2017.
As per the IGST Act, section 2(5), export of products is meant when the products are going outside of India to other places. And the Section 2(27) of the Customs Act states “India includes the territorial waters of India”.
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The CGST Act, Section 2(56) says that territory of India subjects to include territorial waters and airspace above the territory.
Therefore, the export is applicable only when the goods go out of territorial waters of India and it is not the right way to consider the goods exported if it is only crossing the Customs Frontiers of India, as discussed with the AAR.
ROD Retail Private Ltd went against the rule to levy taxes on goods as directed by Delhi AAR to charge GST on duty-free shops in the country.
