2020 (9) TMI 981 - HC - GST

Levy of CGST and IGST - Duty Free Shops (DFS) at Airport - Refund of the Input Tax Credit - supply of goods and services effected by the petitioner in the arrival and departure Duty Free Shops (DFS) at Calicut International Airport in terms of the Concession Agreement - applicability of Central Goods and Service Tax Act, 2017, the Integrated Goods and Service Tax Act, 2017 and the Kerala State Goods and Service Tax Act, 2017 and the rules thereunder - levy of CGST and IGST on the revenue sharing in terms of the Concession Agreement dated 22.04.2016. HELD THAT - The question posed qua entitlement of refund of taxes in respect of goods and services provided at international airport would be applicable to outgoing international tourist i.e. departure area in view of the Circular dated 29.06.2020 as has been argued by the Revenue, would also not be required to be answered by this Court, as the aforementioned circular has also been discussed in the judgment rendered by the High Court of Bombay in the case of SANDEEP PATIL, FLEMINGO TRAVEL RETAIL LIMITED ANR., VERSUS UNION OF INDIA AND OTHERS. 2019 (10) TMI 360 - BOMBAY HIGH COURT - Once there is no dichotomy regarding the contents of letter and as well as the reference of circular in the judgment, then it is a fit case where same benefit is required to extend to the petitioner(s) herein as has been extended to similarly situated DFSs in the State of Karnataka as well as in the State of Maharashtra and other states referred by petitioners counsel and remained unrebutted. It is a matter of record that the petitioner(s) sell goods to the international passengers i.e. departing passengers or passengers arriving into India (arriving passengers) like cigarettes, alcohol, perfumes, chocolates and cosmetics etc. The expressions 'import' and 'export' defined under Customs Act, 1962 have been identically defined in IGST Act, 2017 - Invoices issued by DFSs at the time of sale of goods to the outgoing passengers are duly signed by both the passengers and the cashier. No doubt, it envisages a condition that the passenger will not consume the goods until he lands at the final destination outside India. In other words, the passenger shall become owner of the goods only upon reaching of final destination - It is a matter of record that all the goods which are sold at the DFSs are either imported or purchased from Indian market and are stored in a customs bonded warehouses and are removed from such warehouses only under the supervision of the Jurisdictional Commissioner, thus, for all intents and purposes are not sold for domestic purposes. The goods which are brought from customs warehouses do not cross customs frontiers, thus, before the goods are imported in the country, they had been sold at DFSs. If the transaction of sale or purchase takes place when the goods are imported in India or they are being exported from India, no State can impose any tax thereon . It is also not in dispute that all the DFSs are situated at international airports i.e. at Cochin and Calicut, which are beyond the customs frontiers of India and would not be within the customs frontiers of India. When any transaction takes place outside the customs frontiers of India, of course the transaction is said to have taken place outside India, though the transaction might take place within India. Examining the provisions of Section 2(11) of the Act of 1962 read with Section 286 of the Constitution of India, the said transaction would be said to have taken place outside India. GST will not be applicable. Petitions allowed.

Summary

Issues Involved:
1. Rejection of refund of Input Tax Credit (ITC).
2. Applicability of GST laws to Duty-Free Shops (DFSs) at airports.
3. Non-applicability of Central Goods and Service Tax Act, 2017, Integrated Goods and Service Tax Act, 2017, and Kerala State Goods and Service Tax Act, 2017 to DFSs.
4. Quashing of orders rejecting previously granted refunds.

Issue-wise Detailed Analysis:

1. Rejection of Refund of Input Tax Credit (ITC):
In writ petitions Nos. 12278, 12279, 12280, 12274, and 12317 of 2020, the petitioners challenged the rejection of their ITC refund claims for various periods despite earlier approvals. The court referenced the Bombay High Court’s decision in Sandeep Patil and others Vs. Union of India and others, which ruled in favor of the assessee, stating that owners of DFSs are not liable to pay customs duty or IGST. The court held that the assessee is entitled to a refund of ITC, following the procedure in Rule 89 of the Central Goods and Services Tax Rules, 2017.

2. Applicability of GST Laws to Duty-Free Shops (DFSs) at Airports:
In W.P.(C) No. 6850 of 2018, the petitioner sought a declaration that the Central Goods and Service Tax Act, 2017, the Integrated Goods and Service Tax Act, 2017, and the Kerala State Goods and Service Tax Act, 2017 do not apply to the supply of goods and services at DFSs at Calicut International Airport. The court noted that DFSs are licensed under Sections 58 and 58A of the Customs Act, 1962, and goods sold at DFSs do not attract customs duty. The court cited the Sandeep Patil case, which concluded that sales at DFSs are considered exports and thus zero-rated under GST laws.

3. Non-applicability of Central Goods and Service Tax Act, 2017, Integrated Goods and Service Tax Act, 2017, and Kerala State Goods and Service Tax Act, 2017 to DFSs:
The court addressed the petitioner’s argument that transactions at DFSs qualify as exports under Section 69 of the Customs Act, 1962. It was argued that the activities at DFSs are beyond the customs frontiers of India, and thus, not subject to GST. The court agreed, referencing the judgment in Sandeep Patil’s case, which treated sales from DFSs as exports, making them zero-rated supplies eligible for ITC refund.

4. Quashing of Orders Rejecting Previously Granted Refunds:
In W.P.(C) No. 13237 of 2020, the petitioner sought to quash orders rejecting previously granted refunds. The court found that the rejection was arbitrary and discriminatory, especially since similar refunds were processed and allowed in other states. The court reiterated that sales at DFSs are exports and thus zero-rated, entitling the petitioner to ITC refunds.

Conclusion:
The court set aside the impugned orders in all writ petitions, allowing the claims for ITC refunds and ruling that GST laws do not apply to DFSs at airports for sales considered as exports. The court emphasized that the transactions at DFSs are beyond the customs frontiers of India and thus not subject to GST. The court directed the petitioners to follow the procedure under Section 54(3) of the Central Goods and Services Tax Act, 2017, and the corresponding rules for claiming ITC refunds.