The Central Board of Indirect Taxes and Custom (CBIC) is likely to issue a clarification soon on applicability of Goods and Services Tax (GST) on goods bought at duty-free shops in international airports.

The issue is important as the deadline set by the Indore Bench of the Madhya Pradesh High Court for issuing a clarification comes to an end this week. In its order dated August 23, the two-judge Bench had said, “We direct the learned counsel for the respondents (in this case the tax authority or CBIC) to seek instructions from the Board for issuance of clarification and response, as the matter is already settled by the Apex Court, within a period of 10 days from today.” The status on the Web site of the Madhya Pradesh High Court mentioned September 4 as the tentative date for update.

According to Anita Rastogi, Indirect Tax Partner at PwC, it is important that the government sorts out this issue soon or it would lead to litigation. “Ideally no GST should apply but there should be clear provisions to support this argument. Hence, the government should get this aspect cleared by its legal team,” she said.

Duty-free shops at international airports have their own attraction as they offer many goods without duty, making them cheaper. One can buy alcohol, cigarettes, chocolates and perfumes among others by producing passport and boarding pass for international travel. The issue grabbed the headlines in March after the Delhi Authority for Advance Rulings stated that GST would be leviable on sale of goods in ‘duty-free’ shops. Although, after the order, revenue authorities did say that no duty will be applicable and a clarification would be issued, no such circular has been issued so far.

High court case

In the matter of Vasu Clothing Pvt Ltd vs Union of India before the Indore Bench of Madhya Pradesh High Court, the lawyer for the petitioner submitted that duty-free shops at international airports in India are located beyond the custom frontiers of the country and any transaction that takes place in a duty-free shop is said to be outside India and the petitioner is not liable to pay any CGST, SGST and IGST. It was also submitted that some interim directions be issued to the board to issue necessary clarification regarding eligibility of refund of accumulated credit on goods and services supplied by Indian suppliers. A similar matter did arise during the pre-GST regime when the Supreme Court ruled in the case of Hotel Ashoka vs Assistant Commissioner of Commercial Taxes. The apex court had examined the issue of levy of VAT (Value-Added Tax) on the goods sold in duty-free shops. It was observed that under the provisions of Article 286 of the Constitution of India and Section 5 of the CST Act, goods which were sold beyond Customs frontiers of India, the transactions had taken place in the course of import and the State Government was not permitted to levy VAT on such sale or purchase of goods. It was also observed by the court that the said sale transactions had taken place outside. However, the AAR at Delhi, in its order on March 27, mentioned that duty-free outlet is not located outside India, but within the territory of India as defined under Customs and CGST Act. It means supply here cannot be called export and accordingly GST will be levied. Though the AAR decision is binding only on the applicant and the jurisdictional tax authority and also such a decision does not have a precedent value like that of a High Court or Supreme Court judgment, it can be used as persuasive tool in future cases. Keeping these in mind, a clarification is required to settle disputes in such matters.

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