In what could be seen as a set back for the suppliers to duty-free shops at international airports, a High Court has ruled out GST exemption on such supplies by Indian manufacturers.

Though the matter is not related to travellers directly, he/she will have to pay higher prices for goods supplied by Indian manufacturers because it will be factored in the maximum retail price. Besides, it will make duty-free shops in India less attractive than the others across the world.

Duty-free shops at international airports have their own attraction as they offer goods at lesser costs. One can buy alcohol, cigarettes, chocolates and perfumes, among others, by producing passport and boarding pass. “No provision of law has been brought to the notice of this Court under the Central Goods and Services Tax Act, 2017, which grants exemption from payment of taxes,” a two-judge Bench of the Madhya Pradesh High Court said in its order involving a supplier Vasu Clothing Private Ltd. The Bench also said a tax statute has to be strictly construed. In a Tax Act, one has to look merely at what is clearly said. “There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied,” it said.

Exemption notification

Anita Rastogi, Indirect Tax Partner at PwC, said goods supplied to duty-free shops at airports are charged to GST as currently there is no specific exemption like the pre-GST regime. “Only an exemption notification allowing non-levy of GST can support the point of non-taxability of supplies to duty-free shops as the law otherwise is very clear,” she said.

The petitioner’s contention was that after the enactment of the Central Goods and Service Tax Act, 2017 and the Rules framed there under, it was entitled to supply goods and services to duty-free shops without payment of taxes. Similar supplies from all over the world, except India, are permitted without payment of taxes. The petitioner is a manufacturer and exporter of garments in India and intends to supply goods to Duty Free Operator (DFO), who in turn sells the goods from duty-free shops. It was argued that prior to GST implementation, the duty-free operations in India were exempted from payment of Customs Duty, Countervailing Duty (CVD), Special Additional Customs Duty (SACD), Excise Duty, VAT / Sales Tax, OCTROI, etc. The petitioner also said the principle for exemption from payment of VAT / Sales Tax by an Indian duty-free shop was evolved pursuant to the judgment delivered by the Supreme Court in a matter involving ITDC (one which runs a number of duty-free shops at international airports in India).

Accordingly, the company prayed for a notification to be issued by the government. Its grievance was that in the absence of exemption notification under the relevant GST laws, the DFOs are unable to buy the goods manufactured in India without paying the applicable rate of taxes as provided under the CGST, IGST or SGST as the case may be.

After hearing all, the court made it clear that Indian manufacturer / producer of goods is not entitled for exemption from GST. The Exemption Notifications dated May 23, 2013, issued in respect of payment of exemption of taxes during pre-GST regime are no longer in existence after introduction of GST. The courts do not have the power to legislate, they can only do interpretation of a statute, it clarified.