International Passengers who are purchasing goods at airport ‘duty-free’ shops in Delhi will have to now pay Goods and Services Tax, said Authority of Advance Ruling. All of these outlets at the Delhi International Airport are not free from duties according to the rules of GST.
Before the rollout of GST rules on July 01, 2017, all of these duty-free shops were exempted from the levy of central sales tax & value-added tax as sales from all of these shops were considered as exports and supplies were taking place beyond the ‘customs frontiers’ of India.
Recently, AAR in its ruling said that the supply of goods to the international passengers going abroad from ‘duty free’ shops may be taking place beyond the customs frontiers of India under Integrated GST rules, however, all of these shops are located within the territory of India under the Central GST Act.
The decision was being made on considering the application filed by the Rod Retail Private Ltd, which basically runs a retail outlet at the Terminal 3(International Departure), Indira Gandhi International Airport, New Delhi.
The above-mentioned outlet is not located outside India but it is located within the territory of India according to the section 2(56) of the CGST Act, 2017 and Section 2(27) of the customs Act, 1962 and any user is not taking goods out of India and hence their supply cannot be called ‘export’ 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. Thus, the applicant will have to pay GST at the applicable rates.
Rajat Mohan, AMRG & Associates Partner said the ruling would make these shops uncompetitive when compared with the shops which are located outside Airport. “This verdict would bring the duty-free shops at par with other shops and eliminating the incentive for such shops to operate beyond the custom stations after paying plump rentals.”
Abhishek Jain who is the partner of Ernst and Young said that the AAR has explained the scope of AAR in a simple and structured way for outbound supplies made by duty-free shops.
Abhishek Jain further added, “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. A narrow interpretation as above would entail increased prices and related uncompetitiveness for duty free shops; who are foreign exchange earners for India.”
Under Section 2(5) of the IGST Act, export of goods takes place only when goods are taken out to a place outside India. India is defined under Section 2(27) of the Customs Act as “India includes the territorial waters of India”. Under Section 2(56) of the CGST Act, all the territorial air and the air space above the territory are included in the country.
From the above decision, it can be said that the goods are exported only when they cross the territorial waters of India and they can’t be called to be exported on crossing the Custom frontiers of the country, according to the decision made by AAR.