As per the Authority of Advance Ruling (AAR), the court ruling has clarified that goods sold at the Duty-Free Shops at the arrival and departure terminals of international airports shall be considered as export of goods under CGST Act, 2017. It would also be considered as export of goods under the GST Act. Hence, tax shall not be imposed in case of a purchase made at Duty-Free Shops.
Duty-Free Shop
Duty-free shops are those establishments which are situated in international airports, at the international arrival and international departure area, after crossing all relevant immigration frontiers. These duty-free shops are by default understood to be located beyond the customs frontiers of India.
Duty-free shops sell goods to passengers who are leaving India or entering into India. However, it also does not specify that such business establishment should be free from every tax liability under an indirect taxation law.
Export according to GST law
Section 2[5] of the IGST Act states all products shipped out of India, shall be termed as exports. As the supply of goods to passengers are taking place outside the Customs Frontiers of India through duty-free shops within Section 2(4) of the IGST Act, 2017, the goods cannot be treated as taxable as per Article 286.
The provisions related to Section 2[23] and Section 16[1] of the Integrated GST Act, 2017 are thus rendered inapplicable:
- Products that are imported into India must be treated as supply of goods, till crossing the customs frontier of India as per Sec. 7[2] of the Integrated GST Act, 2017.
- Further, any products that cross the customs frontier of India will also not be observed or classified as Intra-state transactions, as per Section 8[1] of the Integrated GST Act, 2017.
- Hence, the supply of products shall not qualify to be treated as ‘export’ as per the Customs Act, 1962.
Provisions relating to Bonded Warehouses
Usually, before bringing in items to the shop for sale, the goods sold by duty-free shops are stored within the premises of bonded warehouses. When the items are stored within bonded warehouses, the products have not yet crossed the customs frontier of the country as per Customs law. Hence, the products that are stored in the warehouses shall be considered as ‘yet to be imported’. The following provisions apply when the goods stored at the warehouses and sold by duty-free shops are brought into the country from international markets and not manufactured domestically.
Conditions required to be termed as Exports
The following conditions should be met for Duty-Free Shops to be qualified as exports:
- Goods sold by the duty-free shops should be procured from overseas and not being manufactured domestically
- Goods that are imported and stored in a bonded warehouse or a grouping of one or more bonded warehouses
- Stored goods have not been cleared by the customs authorities
- Goods that do not belong to any special category and notified the Central Government
- An invoice stating that the passenger shall not consume the goods until landing outside India, and that passenger attains ownership of the product(s)
- If the assessee has procured up to 2% of the goods from an SEZ unit.
- If the assessee has filed a bill of entry for warehousing under Section 46 of the Customs Act, 1962
- Goods shifted from Warehouse to duty-free shop as per Customs Act, 1962
As per the above provisions by the GST Act, the products sold through the duty-free shops should be treated as exports and thus non-taxable.