Cial Duty Free And Retail Services Ltd ... vs Union Of India on 22 September, 2020
AI Legal Insights
This GST case law analysis examines the Kerala High Court's decision in Cial Duty Free And Retail Services Ltd vs. Union of India (2020), concerning Input Tax Credit (ITC) refunds for Duty-Free Shops (DFSs). The core issue revolved around the applicability of the CGST Act, IGST Act, and KSGST Act to supplies made by DFSs at international airports. The High Court ruled that DFSs are entitled to claim 100% ITC refunds, including GST paid on concession fees, thus clarifying the tax obligations for these businesses operating in special economic zones and impacting refund claims under Section 54 of the CGST Act.
This ruling provides clarity for duty-free shops operating at international airports, allowing them to claim ITC refunds on goods supplied to international passengers, reducing their overall tax burden. The judgment is a setback for the revenue department, which sought to levy GST on these supplies and deny ITC refunds.
- Duty-Free Shops (DFSs) are eligible for 100% Input Tax Credit (ITC) refund.
- GST cannot be levied on goods supplied by DFSs to international passengers.
- Concession fees/revenue sharing paid by DFSs are not subject to GST.
- The Kerala High Court set aside orders denying ITC refunds to DFSs.
- This case clarifies the GST implications for businesses operating in duty-free zones.
QAre duty free shops eligible for GST input tax credit?
Yes, according to the Kerala High Court's ruling in Cial Duty Free And Retail Services Ltd vs. Union Of India, duty-free shops are eligible to claim 100% Input Tax Credit (ITC) refund on goods supplied to international passengers.
QIs GST applicable on sales at duty free shops?
No, the Kerala High Court held that Goods and Services Tax (GST) is not applicable on the supply of goods by Duty-Free Shops (DFSs) to international passengers, both departing and arriving. This decision clarifies the tax treatment for these specific types of sales.
QWhat is the GST rate on duty free items?
While the specific GST rate on the inputs used to procure duty-free items remains applicable, the final sale to international passengers is not subject to GST, according to the Kerala High Court ruling, meaning there is effectively no output GST applied.
Ruling Summary
Here's a summary of the judgment:
1. Outcome
The Kerala High Court allowed all writ petitions, setting aside the impugned orders that rejected the refund of Input Tax Credit (ITC) to Duty-Free Shops (DFSs) and levied Goods and Services Tax (GST) on concession fees/revenue sharing. The Court held that DFSs are entitled to claim 100% ITC and its refund.
2. Core Issue
The core issue was whether the supply of goods and services by Duty-Free Shops (DFSs) at international airports to international passengers (departing and arriving) falls within the ambit of the Central Goods and Service Tax Act, 2017 (CGST Act), Integrated Goods and Service Tax Act, 2017 (IGST Act), and Kerala State Goods and Service Tax Act, 2017 (KSGST Act), making them liable to GST and, consequently, whether these DFSs are eligible for a refund of unutilized Input Tax Credit (ITC) for such supplies, including GST paid on concession fees/revenue share to the Airport Authority.
3. Key Facts
* The petitioners (Cial Duty Free And Retail Services Ltd and Flemingo Duty Free Shop Private Limited) operate DFSs at Cochin and Calicut International Airports.
* These DFSs are licensed by the Jurisdictional Commissioner of Customs under Sections 58 and 58A of the Customs Act, 1962, to operate special warehouses for duty-free goods.
* The goods sold by DFSs are either imported or procured from Special Economic Zones units in India and stored in customs bonded warehouses.
* Sales are made to international passengers travelling through the international terminal, typically in foreign currency or permitted Indian currency.
* Sale vouchers for outgoing passengers are deemed to be shipping bills under Section 69 of the Customs Act, 1962.
* The petitioners initially received refunds of unutilized ITC under Section 54(3) of CGST and SGST Acts, read with Rule 89 of CGST/SGST Rules, but subsequently received show cause notices for cancellation and rejection of further refunds.
* The Airports Authority of India (AAI) started charging CGST and SGST on the minimum guaranteed fees/concession fees for the licensed premises from July 2017.
* Similar DFS operators in other states (Maharashtra, Karnataka, Punjab, Tamil Nadu, Goa, West Bengal, Gujarat) had either been granted refunds or had favorable High Court orders.
* The Central Board of Indirect Taxes and Customs (CBIC) decided not to file a Special Leave Petition (SLP) against a similar judgment of the Bombay High Court in M/s Flemingo Travel Retail Ltd., thereby accepting the High Court's position.
4. Arguments
-
Taxpayer (Petitioners - CIAL Duty Free and Flemingo Duty Free):
- DFSs are located in customs areas, which are beyond the "customs frontiers of India" as defined under the Customs Act, 1962, and IGST Act, 2017.
- Transactions at DFSs for sales to international passengers constitute "export" of goods and are "zero-rated supplies" under the IGST Act, hence not liable to GST.
- Goods do not cross the customs frontiers of India when sold at DFSs; they are sold while still in bond.
- Sales to arriving passengers are also treated as "export" by the DFS, and the passenger becomes the importer upon crossing the customs barrier, a position affirmed by the Supreme Court in Aarish Altaf Tinwala.
- The services (leasing/licensing of premises for DFSs) are provided in a "non-taxable territory," and thus, GST should not apply to the concession fees/revenue sharing.
- Denial of ITC refund is discriminatory, as similar refunds have been allowed in other states, violating the "one nation, one tax" principle.
- Relied heavily on the Bombay High Court judgment in Sandeep Patil and others Vs. Union of India and others, which held DFS sales as export/zero-rated supply and eligible for 100% ITC refund, and the government's acceptance of this judgment (by not filing SLP).
- Subjecting DFSs to GST would increase prices, hamper foreign trade, and negate the intent of Article 286 of the Constitution of India.
-
Revenue (Union of India, State of Kerala, Airport Authority):
- DFSs are physically located within India and therefore within "taxable territory" as defined in the CGST Act and State GST Acts.
- The treatment of sales as "export" under the Customs Act cannot be mutatis mutandis applied to GST laws.
- Rule 95-A of the CGST Rules, 2017 (introduced w.e.f. July 1, 2019) restricts tax-free supply benefit to retail outlets in the "departure area" for outgoing international tourists, implying that sales to arriving passengers or other supplies may not qualify.
- An alternative remedy is available against the orders rejecting refunds, making the writ petitions non-maintainable.
- The ownership of goods transfers to passengers immediately upon purchase (as per Section 19 of the Sale of Goods Act, 1930).
- ITC is limited to the tax on the value of goods, and GST paid on services (like concession fees) cannot be allowed as ITC for refund purposes.
- Article 286 of the Constitution of India, and cases like Hotel Ashoka, pertained to VAT and CST, not GST, and are thus not directly applicable.
5. Court’s Reasoning
The Court primarily relied on the Bombay High Court's decision in Sandeep Patil and others Vs. Union of India and others (2019 (31) GSTL 398), and the fact that the Central Board of Indirect Taxes and Customs (CBIC) had explicitly decided not to file an SLP against a similar judgment involving M/s Flemingo Travel Retail Ltd., effectively accepting the legal position established by the Bombay High Court.
The Court reasoned as follows:
* Binding Precedent: The non-filing of an SLP by the CBIC against the Flemingo Travel Retail Ltd. judgment (which followed Sandeep Patil) indicates the Government's acceptance of the Bombay High Court's ruling, making it a binding precedent for similarly situated DFSs across India, based on the "one nation, one tax" principle.
* Customs Frontiers and Taxable Territory: DFSs are situated at international airports, which are considered beyond the customs frontiers of India. The definitions of "import" and "export" in the Customs Act, 1962, and the IGST Act, 2017, are identical. Goods sold at DFSs, being from customs bonded warehouses and under customs supervision, have not crossed the customs frontiers for domestic consumption. Therefore, transactions within these areas are deemed to have taken place outside India.
* Export/Zero-Rated Supply: Sales by DFSs to outgoing international passengers qualify as "export of goods" under Section 2(5) and 16(1) of the IGST Act, thus being "zero-rated supplies" eligible for 100% ITC refund.
* Sales to Arriving Passengers: Following the Central Government's order in Aarish Altaf Tinwala (affirmed by the Supreme Court), sales from arrival DFSs are also treated as "export" by the DFS, with the passenger becoming the importer. This makes such supplies also zero-rated and eligible for ITC refund.
* Rule 95-A: The interpretation of Rule 95-A (confining benefit to departure area) was also considered in Sandeep Patil, and the Court found that the underlying principles regarding customs frontiers and zero-rated supplies applied broadly.
* Impact of GST: Imposing GST on DFS operations would increase prices, render Indian DFSs uncompetitive globally, adversely affect foreign trade, and contradict the spirit of Article 286 of the Constitution, which restricts taxing imports/exports.
* Concession Fees: The Court ruled that the petitioner should pay GST on input services, including concession fees to the Airport Authority, and then claim a refund of the entire tax amount as ITC.
6. Statutory References
* Constitution of India:
* Article 14, 19, 21, 300A, 286
* Customs Act, 1962:
* Section 2(11) (Customs Area)
* Section 2(18) (Export)
* Section 58, 58A (Licensing of warehouses)
* Section 69 (Export of warehoused goods)
* Section 1168369 (likely a typo, intended as Section 2 of Customs Act)
* Central Goods and Service Tax Act, 2017 (CGST Act):
* Section 1(2) (Extent of Act)
* Section 2(78) (Non-taxable supply)
* Section 2(79) (Non-taxable territory)
* Section 2(109) (Taxable territory)
* Section 9(1) (Levy and collection)
* Section 15 (Value of taxable supply)
* Section 17(2) (Apportionment of credit and blocked credits)
* Section 54(3) (Refund of tax)
* Schedule III
* Integrated Goods and Service Tax Act, 2017 (IGST Act):
* Section 2(4) (Customs frontier of India)
* Section 2(5) (Export of goods)
* Section 2(10) (Import of goods)
* Section 5 (Levy and collection of IGST)
* Section 7(2) (Inter-State supply)
* Section 13 (Place of supply of services where location of supplier or recipient is outside India)
* Section 13(4) (Place of supply for services directly in relation to immovable property)
* Section 16 (Zero-rated supply)
* Customs Tariff Act:
* Section 3(12), 12
* Sale of Goods Act, 1930:
* Section 19
* Central Goods and Services Tax Rules, 2017:
* Rule 89 (Application for refund)
* Rule 95-A (Special procedure for refund of tax paid by retail outlets established in the departure area of an international airport beyond immigration counters making tax free supply to an outgoing international tourist)
* Kerala State Goods and Service Tax Act, 2017 & Rules, 2017
* Notifications:
* No.43/2017-Cus dated 30.06.2017
* No.2/2017 IGST(rate) dated 28.06.2017
* No.68 & 69/2016-Customs (N.T)
* Circulars:
* Circular No.20/2016-Customs dated 20.05.2016
* Circular No.106/25/2019-GST dated 29.06.2019
7. Precedents Cited
* Sandeep Patil and others Vs. Union of India and others (2019 (31) GSTL 398) (Bombay High Court)
* J.V. Gokal and Co. (P) Ltd. Vs. The Assistant Collector of Sales Tax (Inspection) and others (AIR 1960 SC 595) (Constitutional Bench of Supreme Court)
* Hotel Ashoka (Indian Tourism Development Corpn. Ltd. VS. Assistant Commissioner of Commercial Tax and others (AIR 2012 SC 982) (Supreme Court)
* Flemingo Travel Retail Limited and another Vs. Union of India and others (Writ Petition No.1511 of 2019 dated 07.10.2019) (Bombay High Court)
* Atin Krishna Vs. Union of India and others (PIL (Civil) No.12929 of 2019 decided on 03.05.2019) (Allahabad High Court)
* Commissioner of Central Excise, Pune vs. Coca-Cola India Pvt. Ltd. (2007 (213) ELT 490 (SC)) (Supreme Court)
* Cipla Limited Vs. UOI (1995 (80) ELT 17 (Bom)) (Bombay High Court)
* Aarish Altaf Tinwala (Central Government order dated 31st August 2018 in F.No.371/142/B/2018-RA/1391, affirmed by Supreme Court in WP(C) No.564 of 2019 dated 10th May 2019)