2019 (2) TMI 1628 - HC - Customs

Prohibition on sale and distribution of cigarettes and other tobacco product manufactured by Indian manufacturers and suppliers - prohibition on duty free shops - benefit of section 32 of the COTPA - scope of 'Exports' - HELD THAT - Respondent No.2 while selling the goods from its duty free shops at departure terminal hold themselves as exporters of the goods and therefore it falls under the ambit of exporter as defined in section 2(20) of the Customs Act, 1962. Applying the definition provided in the Customs Act, in this context, the goods supplied to the duty free shops by the Indian and international manufacturers / suppliers are 'exported goods', and on reading this definition in conjunction with the definitions of exporter, it is clear that the duty free shop operator is the exporter and the supply of goods to the international passengers is an export - the export oriented units which undertake to export their entire quantity of goods and services, are permitted to do so by setting up retail outlets, i.e., duty free shops, at international airports. Even as per the FTP of India, sales undertaken from the said duty free shops are export and the duty free shop operator is the exporter. It is also worth to mention that COTPA itself provides for reasonable restriction wherever the legislature intended to impose such restriction. The exemption provided under section 32 of the COPTA for export of tobacco product is rightly conferred on the duty free shops and challenges to the provisions of the COPTA cannot be entertained - petition dismissed - decided against petitioner.

Issues Involved:
1. Constitutionality of sections 1(2), 7(3), and 32 of the Cigarettes and Other Tobacco Products Act, 2003 (COTPA) as applied to duty-free shops.
2. Compliance with mandatory labelling requirements for tobacco products sold at duty-free shops.
3. Violation of Articles 14, 21, and 47 of the Constitution of India.
4. Definition and interpretation of "export" under COTPA and related laws.
5. Applicability of previous court judgments on duty-free shops and their operations.

Detailed Analysis:

1. Constitutionality of Sections 1(2), 7(3), and 32 of COTPA:
The petitioner challenged the constitutionality of sections 1(2), 7(3), and 32 of COTPA, arguing that these provisions should not apply to duty-free shops at international airports. The petitioner sought to align these sections with Articles 14, 21, and 47 of the Constitution of India. The court dismissed these claims, stating that the exemption provided under section 32 of COTPA for the export of tobacco products is valid and applicable to duty-free shops.

2. Compliance with Mandatory Labelling Requirements:
The petitioner argued that duty-free shops do not comply with the mandatory labelling requirements specified in COTPA, COTP Labelling Rules, 2008, and COTP Labelling Amendment Rules, 2014. The petitioner contended that tobacco products sold at these shops should adhere to these labelling requirements. The court found that duty-free shops are considered as operating outside India's customs frontiers, and thus, the labelling requirements under COTPA do not apply.

3. Violation of Articles 14, 21, and 47 of the Constitution of India:
The petitioner claimed that the sale of tobacco products at duty-free shops violates Article 21 (Right to Life) and Article 47 (Duty of the State to improve public health) of the Constitution. The court rejected this argument, emphasizing that duty-free shops are deemed to be outside the geographical territory of India, and thus, the restrictions under COTPA do not apply.

4. Definition and Interpretation of "Export":
The court examined the definition of "export" under COTPA, the Customs Act, 1962, and the IGST Act, 2017. It concluded that goods sold at duty-free shops are considered "exported goods" as per these definitions. The court referenced the Supreme Court's judgment in M/s. Ashoka Hotel, which held that duty-free shops at international airports are beyond the customs frontiers of India, and transactions at these shops are considered exports.

5. Applicability of Previous Court Judgments:
The court relied on previous judgments, including the Supreme Court's decision in M/s. Ashoka Hotel and the High Court's decision in A-1 Cuisines Pvt. Ltd., to support its conclusion. These judgments established that duty-free shops are deemed to be outside India for customs and tax purposes. The court also noted that it is not within its jurisdiction to declare a Supreme Court judgment as per incuriam.

Conclusion:
The court dismissed the petition, affirming that duty-free shops at international airports are considered outside India's customs frontiers and are thus exempt from the labelling requirements and restrictions under COTPA. The court upheld the constitutionality of sections 1(2), 7(3), and 32 of COTPA as applied to duty-free shops, and found no merit in the petitioner's claims of violations of Articles 14, 21, and 47 of the Constitution. The petition was dismissed with no order as to costs.

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