Flemingo Travel Retail Limited And Anr vs Union Of India And 4 Ors on 7 October, 2019

1. Outcome

• Writ Petition No. 1511 of 2019 (Flemingo Travel Retail Limited vs. Union of India): Allowed. The impugned adjudication order dated 10th January 2019 (denying refund of input tax credit) and all related show cause notices were quashed and set aside.
• Writ Petition No. 1535 of 2019 (Flemingo Travel Retail Limited vs. Union of India): No specific declaration was issued regarding GST liability on concession fees paid to MIAL. However, the Petitioner was affirmed to be entitled to claim Input Tax Credit (ITC) on such services and seek a refund as per Rule 89, causing no prejudice.
• Criminal Application No. 8 of 2019 (Sandeep Patil vs. Union of India): Dismissed as infructuous.
• Overall: The Court ruled largely in favour of Flemingo Travel Retail Limited, recognizing its entitlement to claim and refund ITC on services used for its Duty-Free Shop (DFS) operations, treating sales to international passengers as zero-rated supplies/exports. A stay on the judgment was refused.

2. Core Issue

The core issue was whether sales of goods by Duty-Free Shops (DFS) located in the international arrival and departure areas of Mumbai International Airport (MIAL) to international passengers constitute "export" or "zero-rated supplies" under GST laws, thereby entitling the DFS to claim and refund Input Tax Credit (ITC) on associated input services, and whether such sales fall within the ambit of State taxation under Article 286 of the Constitution of India. A related issue was the applicability of GST on concession fees paid by DFS to the airport operator.

3. Key Facts

• Flemingo Travel Retail Limited (Petitioner) operates DFS at MIAL in international arrival and departure zones, situated beyond the customs frontiers of India.
• The DFS primarily sells imported/warehoused goods (approx. 98%) to international departing and arriving passengers. Goods are kept in a special customs bonded warehouse under Section 58A of the Customs Act, and transferred to DFS (within the customs area) under customs supervision, without being cleared for home consumption.
• The Petitioner receives various input services (e.g., rent, maintenance, CHA, professional services) on which GST is paid.
• The Deputy Commissioner of Sales Tax issued an order on 10th January 2019, denying ITC refund to the Petitioner on the ground that sales from DFS are not exports or zero-rated supplies under GST.
• Invoices for sales to departing passengers include a declaration that the passenger is a carrier, ownership transfers only upon landing at the foreign destination, and goods are not to be consumed until then. Customs procedures ensure goods leave India.
• From 1st July 2019, the Petitioner stopped procuring tax-paid indigenous goods for outbound international tourists.
• With effect from 1st February 2019, amendments to the CGST Act (Schedule III, Entry 8(a)) classified the supply of warehoused goods before clearance for home consumption as neither a supply of goods nor services.
• The Petitioner asserted that other DFSs in India operating under similar circumstances are receiving ITC refunds.

4. Arguments (Taxpayer vs Revenue)

• Revenue (Union of India & State of Maharashtra):

  • Writ petitions should be dismissed due to availability of alternate remedies.
  • Article 286 and Supreme Court's Hotel Ashoka judgment are irrelevant as they pertain to VAT/CST laws, not GST, and there is no "sale in the course of import" under GST.
  • Other judgments favoring DFSs under Customs, Service Tax, etc., are not applicable to GST, which is a self-contained code.
  • DFS is located within the "taxable territory" of India/Maharashtra; both supplier and receiver are in India at the time of supply.
  • Under Section 19 of the Sale of Goods Act, ownership transfers to the passenger immediately; thus, the DFS doesn't "export," but the passenger does. Goods are not "taken out of India" by DFS.
  • Relied on the Rod Retail Private Limited AAR, which treated supplies to international passengers from DFS as intra-State supply, not export.
  • The term "Duty-Free Shop" does not grant exemption from all indirect taxes. ITC is only for tax on goods, not services. Import without customs duty doesn't mean no GST liability.
  • Supply to incoming passengers cannot be entitled to refund.
  • Arguments about price competitiveness are irrelevant.

• Taxpayer (Flemingo Travel Retail Limited):

  • Sales from DFS (both departure and arrival) are beyond the customs frontiers of India and are sales "in the course of export/import," thus immune from State taxation under Article 286 of the Constitution, as affirmed by J.V. Gokal & Co. and Hotel Ashoka (Supreme Court).
  • DFS goods are within a customs area and not cleared for home consumption, so they are legally considered outside India for tax purposes.
  • Sales to departing passengers are "exports" by the DFS as per Section 2(5) of the IGST Act, making them zero-rated supplies under Section 16(1) of the IGST Act, eligible for ITC refund. The contractual terms (invoice declaration) ensure ownership passes only upon reaching the foreign destination, with the passenger acting as a carrier.
  • Input services are used for business and fully eligible for ITC under Section 16(1) of the CGST Act.
  • The Rod Retail AAR is inapplicable to DFS, as clarified by CBIC, and pertains to a duty-paid shop.
  • For sales to arriving passengers:
    • For the period 1st July 2017 to 31st January 2019, a Central Government order (affirmed by Supreme Court in Aarish Altaf Tinwala) treated supply from arrival DFS as "export" by DFS, making it a zero-rated supply.
    • From 1st February 2019, such sales fall under Schedule III, Entry 8(a) of the CGST/SGST Act (neither supply of goods nor services), and due to Section 17(2) amendment, ITC reversal is not required, thus ITC is eligible for refund.
  • No customs duty or IGST is payable by DFS for sales to arriving passengers as goods have not crossed customs frontiers for home consumption; arriving passenger's baggage is also exempt under relevant notifications/Baggage Rules.
  • Taxing DFS negates the intent of Article 286, increases prices, and harms India's foreign trade competitiveness.
  • Discriminatory treatment, as other states grant similar ITC refunds to DFS operators.

5. Court’s Reasoning

• Alternate Remedy: The Court entertained the writ petitions, citing the Supreme Court's precedent in Hotel Ashoka where, despite alternate remedies, the appeal was heard due to the clear legal position in the appellant's favour.
• Constitutional Mandate (Article 286): The Court strongly relied on Article 286 and the binding precedents of the Supreme Court (especially the Constitution Bench judgment in J.V. Gokal & Co. and Hotel Ashoka). It held that goods in DFS, being in a customs bonded warehouse/customs area and not cleared for home consumption, are deemed to be outside the customs frontiers of India. Therefore, sales from DFS cannot be subjected to State taxes.
• "Export" and "Zero-Rated Supply" (Departing Passengers):
  • Applying Sections 5(2) and 19(1) of the Sale of Goods Act, 1930, the Court found the declaration on DFS invoices valid, establishing that property in goods passes only at the foreign destination. The outbound passenger is merely a carrier.
  • It concluded that sales to departing passengers constitute "export" by the DFS under Section 2(5) of the IGST Act ("taking goods out of India to a place outside India") and are therefore "zero-rated supplies" under Section 16(1) of the IGST Act, making the DFS eligible for ITC refund.
  • This was consistent with its prior judgment in Sandeep Patil and rulings of the Allahabad High Court and another Bombay High Court bench.
• Sales to Arriving Passengers:
  • For the period before 1st February 2019, the Court relied on the Central Government order (affirmed by the Supreme Court in Aarish Altaf Tinwala) that supplies from arrival DFS are treated as "export" by the DFS (with the passenger becoming the importer upon crossing customs). By legal fiction, these were also zero-rated supplies eligible for ITC refund.
  • For the period from 1st February 2019, the Court noted the CGST (Amendment) Act, 2018, which inserted Entry 8(a) in Schedule III, classifying supply of warehoused goods before clearance for home consumption as neither supply of goods nor services. Concurrently, Section 17(2) of the CGST Act was amended, removing the requirement for ITC reversal for such activities. Thus, ITC related to arrival DFS sales became fully eligible for refund.
  • The Court also affirmed that since goods for arriving passengers are within the customs area and not cleared for home consumption by DFS, no customs duty or IGST is payable by DFS. Moreover, incoming passenger baggage is largely exempt from IGST/customs duty under specific notifications and baggage rules.
• Distinguishing Revenue's Precedents: The Court systematically distinguished the cases cited by the Revenue (Burmah Shell, Madras Marine, Narang Hotels, Pure Helium, Radhasons International) as not relevant to DFS operations or involving different factual scenarios (e.g., local consumption, no specific foreign destination) and therefore not applicable to the present case which concerns true exports/imports. It also dismissed the Rod Retail AAR, highlighting the CBIC clarification that it applied only to the specific applicant (a duty-paid shop) and not to DFSs generally.
• Consistency and Policy: The Court emphasized the "One Nation, One Tax" principle and noted the inconsistency where similar DFSs in other states were granted ITC refunds. It reiterated that taxing DFS would negate the purpose of Article 286, increase prices, and negatively impact India's foreign trade competitiveness.
• GST & Customs Law Harmony: The Court stressed that the "customs frontier" in the IGST Act refers to the "customs area" as defined in the Customs Act. Goods within this area are not considered to have crossed the customs frontier, and the taxable event for customs duty (and consequently IGST on imports) occurs only when goods are cleared for home consumption.

6. Statutory References

• Constitution of India:
  • Article 286
  • Article 14, 19, 21, 300A
  • Article 246A, 279A
  • Article 32
• Customs Act, 1962:
  • Section 2(11) (Customs Area)
  • Section 2(13) (Customs Station)
  • Section 12 (Levy of Customs Duty)
  • Section 46 (Bill of Entry for warehousing)
  • Section 58A (Special warehouse licence)
  • Section 59, 60 (Warehousing provisions)
  • Section 68 (Clearance for home consumption)
  • Section 77
• Integrated Goods and Services Tax Act, 2017 (IGST Act):
  • Section 2(4) (Customs Frontier)
  • Section 2(5) (Export)
  • Section 2(10) (Import)
  • Section 5 (Proviso) (Levy of IGST on imports)
  • Section 7(2) (Inter-State supply)
  • Section 16(1) (Zero-rated supply)
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • CGST (Amendment) Act, 2018
  • Section 1(2) (Extent of Act)
  • Section 2(79) (Non-taxable territory)
  • Section 2(109) (Taxable territory)
  • Section 16(1) (Eligibility for Input Tax Credit)
  • Section 17(2) (Reversal of Input Tax Credit)
  • Section 55 (Refund to certain persons)
  • Section 103 (Applicability of AAR)
  • Schedule III, Entry 8(a) (Activities not treated as supply)
  • Rule 89 (Refund of Input Tax Credit)
• Maharashtra Goods and Services Tax Act (MGST Act):
  • Section 1(2) (Extent of Act)
• Customs Tariff Act, 1975:
  • Section 3, 3(12)
• Sale of Goods Act, 1930:
  • Section 5(2) (Contract of sale how made)
  • Section 19(1) (Property passes when intended to pass)
• Notifications & Circulars:
  • Public Notice No. 154/2004 dated 22nd July 2004 (Customs Procedures for Operation of DFS)
  • Customs Notification No. 43/2017-Cus dated 30th June 2017
  • IGST Notification No. 2/2017 IGST (rate) dated 28th June 2017
  • Circular No. 106/245/2019-GST dated 29th June 2019 (CBIC)

7. Precedents Cited

• Relied upon by the Court:
  • J.V. Gokal & Co. vs CST, AIR 1960 SC 595 (Constitution Bench)
  • Indian Tourist Development Corp. Ltd. Through Hotel Ashoka v. CCT, (2012) 3 SCC 204
  • Kiran Spg. Mills v. Collector of Customs, AIR 2000 SC 3448
  • Aarish Altaf Tinwala vs. Union of India, Writ Petition (C) No. 564 of 2019 (Supreme Court order, affirming Central Government order dated 31st August 2018 in F.No. 371/142/B/2018-RA/1391)
  • Sandeep Patil vs. Union of India & Ors. (Criminal Public Interest Litigation No.14 of 2019) (Bombay High Court, earlier ruling in same case)
  • Atin Krishna vs. Union of India & ors., P.I.L. CIVIL NO. 12929 of 2019 (Allahabad High Court)
  • A-1 Cuisines Private Limited Vs. Union of India, Writ Petition No. 8034 of 2018 (Bombay High Court)
  • Roe Kim Seing v. Maung Ba Chit, AIR 1935 PC 182
  • Garden Silks Mills Ltd. Vs. Union Of India, 1999 (113) ELT 0358 (SC)
  • IN RE: The Bill to amend Section 20 of the Sea Customs Act, 1878 and Section 3 of the Central Excise Act, 1944, (1964) 3 SCR 787 (Sea Customs Act Case)
• Cited by Revenue / Distinguished by the Court:
  • M/s. Deepmani vs. State of Maharashtra (Sale Tax Reference No.9 of 2002)
  • Burmah Shell Oil Storage and distributing Co. of India Ltd. vs. CTO, (1961) 1 SCR 902
  • Madras Marine & Co. vs. State of Madras, (1986) 63 STC 0169 (SC)
  • Narang Hotels and Resorts Pvt. Ltd. vs. State of Maharashtra, (2004) 135 STC 289 (Bom) (Court found this case actually supported the Petitioner's arguments on Sale of Goods Act)
  • Commissioner of Sales Tax vs. M/s. Pure Helium (India) limited, (2012) 49 VST 17
  • Commissioner of Sales Tax Maharashtra State vs. Radhasons International (Reference Application No. 46 of 2008)
  • K. Gopinath Nair vs State of Kerala, 1992(4) SCC701
  • Rod Retail Private Limited, AR No. 01/DAAR/2018 (Authority for Advance Rulings)
  • State of Travancore-Cochin v. Bombay Co. Ltd., AIR 1952 SC 366
  • State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, AIR 1953 SC 533