There has been a lot of ambiguity pertaining to the applicability of Goods and Services Tax (“GST”) on the supply of goods by Duty Free Shops (“DFS”) located at airports to passengers travelling overseas from India and also to those returning to India from overseas. A recent judgment by the Hon’ble Allahabad High Court in the matter of Atin Krishna V. Union Of Jndia,Thru Secy. Ministiry of Finance and Others which arose from a public interest litigation has cleared the air putting aside the ambiguity to rest.
The Hon’ble Allahabad High Court observed that the supply of imported goods to and from DFS did not result in the goods crossing the customs frontiers of India. The supply of goods to and from DES is to be regarded as an inter-state supply of goods in course of inter-state trade or commerce as per Section 7(2) of Integrated Goods and Services Tax Act, 2017 (“IGST Act”). This implies such supply is not regarded as an inter-state supply which is leviable to Central Goods and Services Tax (“CGST”) and State Goods and Services Tax (“SGST”) under the CGST and SGST Act respectively, and will be governed by IGST Act.
Supply of goods by DFS to outbound passengers (i.e. travelling overseas from India)
The goods sold by DFS to outbound passengers are not cleared for home consumption. The goods are cleared without payment of duty only for export basis an invoice which is also deemed to be a shipping bill.
IGST on the goods imported into India is leviable as per Section 3 of Customs Tariff Act, I 975 when goods are cleared for home consumption. The taxable event for levy of Customs duty towards goods imported is when the goods cross the customs frontiers of India and the bill of entry for home consumption is filed. Therefore, when goods are imported from outside India and kept in a customs warehouse and exported therefrom, the applicability of Custom duty nor IGST does not arise.
The supply of goods by the DES to outbound passengers would tantamount to export as per the provisions of the Customs Act and will also qualify as export of goods as per the provisions of the GST considering the definitions of “export” and “export of goods” under both legislations is the same.
Supply of goods by DFS to inbound passengers (i.e. travelling to India from overseas)
In such a scenario, the supply takes place before clearance for home consumption. The inbound passengers cross the customs frontiers at the airport along with the good and only then clear the goods for home consumption and is liable to pay Custom duty. The goods being a part of the passenger’s baggage are cleared for home consumption by the passenger as per the Baggage Rule, 2016. No Custom Duty is payable by the DFS.