Allahabad HC: Goods sold from duty free shops is to be treated as ‘export of goods’

Categories: Advance Ruling
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Facts & Background:

Atin Krishna (“the Petitioner”)  has filed petition  in public interest seeking to ensure that the provisions of the Central Goods and Services Tax Act, 2017 (“CGST Act”) Uttar Pradesh Goods and Services Tax Act, 2017 (“SGST Act”) and Integrated Goods and Services Tax Act, 2017 (“IGST Act”) are implemented in proper manner qua the duty free shops (“DFS”) operated at Chaudhary Charan Singh International Airport, Lucknow (“Airport”) by the one of the Respondents (“Respondent”).


Whether Goods sold at International airport departure terminal by duty-free shops is to be treated as export of goods?

Allegations & contentions in the Issue involved in this case:

  • Respondent has been operating DFS at the arrival and departure termination of Airport since 2004 and the operations of these shops are governed in accordance with the provisions of Customs Act, 1962 (“Customs Act”).
  • Respondent is required to obtain registration of its business under CGST Act and SGST Act and is allotted respective GSTIN numbers and owing to registration obtained under the respective Acts, the activity is undertaken by him also attracts the provisions of GST Act.
    • The Respondent is liable to pay IGST on the goods imported into the territory of India, which it is not doing.
    • Despite the DFS operated by the Respondent being in the State of Uttar Pradesh, the goods were sold to the International passengers without charging the applicable taxes under CGST and SGST Acts.
    • The Respondent is incorrectly permitted to claim a refund of an accumulated input tax credit of GST paid on service of renting of immovable property by AAI and procurement of domestic goods and services. This refund is being granted under the grounds that the sale made to the International passengers at the departure terminal DFS is exports of goods and hence zero-rated. The sale invoice issued to the International passengers is incorrectly being considered as proof of exports of goods.
  • However, the provisions of these enactments are being misinterpreted and the DFS operated by the Respondent are presently enjoying various exemptions causing severe loss of revenue to the public exchequer.


The Hon’ble High Court, Allahabad observed Section 5(1) of the IGST Act read with Section 12 of the Customs Act, 1962 and vide PIL Civil No. 12929 of 2019 dated May 3, 2019, held:

  • The warehouse goods are supplied by the DFS to the International arriving passengers before its clearance for home consumption. The arriving passengers thereafter cross the customs frontier at the airport along with the goods and only then clears the same for home consumption. The passenger is therefore liable to pay the applicable duties of customs. The goods being a part of passenger’s bonafide baggage are cleared for home consumption by the passenger under the Baggage Rules, 2016 and not by the DFS, hence no customs duty is payable by the DFS and therefore under proviso of Section 5(1) of the IGST Act read with Section 12 of the Customs Act, IGST is not payable.
  • The supply of warehoused goods by the DFS at the departure terminal is to departing International passengers i.e. the passengers traveling from India to a foreign destination. Thus, the goods supplied are never cleared for home consumption and the warehoused goods are exported by the DFS, therefore the levy Customs duty and of the IGST do not arise. Therefore, IGST is not payable on the supply either to or from the DFS located at the arrival or at the departure terminal.
  • The court observed that since the goods sold to passengers at the International departure terminal DFS are not cleared for home consumption nor for removal to another warehouse or otherwise provided in Section 71 of the Customs Act, the goods are cleared without payment of duty only for export under Section 69 of the Customs Act under an invoice which is also deemed to be a shipping bill. Hence, the sale/supply at the International departure terminals DFS would be export of goods under Customs Law and therefore will be considered as exports of goods under GST Act, since the definition of “export” and “export of goods” under both the laws is the same.
  • The exemption under GST on goods supplied to and from DFS is rightly conferred and the claims of any accumulated unutilized ITC are refundable to Respondent.

Citation: [2019] 107 411 (Allahabad)

Relevant provisions:

Section 5 (1) of the IGST Act-

“5(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and service tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under Section 15 of the Central Goods and Service Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:

Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962″

Section 12 of the Customs Act-

“12(1) Except as otherwise provided in this Act or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force on goods imported into, or exported from India“.

Our comments:

The Hon’ble Authority for Advance Ruling, New Delhi in the case of In Re: M/S. Rod Retail Private Limited vide AR No. 01/DAAR/2018 (In Application No: 01/DAAR/2017) dated March 27, 2018, gave ruling contrary to the above-mentioned judgment. It held that the goods can be said to be exported only when they cross the territorial waters of India and the goods cannot be called to be exported, merely on crossing the Customs Frontiers of India. Therefore, required to pay GST.

The Government vide Notification No. 11/2019-Central Tax (Rate), 10/2019-Integrated Tax (Rate), 11/2019-Union territory Tax (Rate) and Circular No. 106/25/2019-GST all dated June 29, 2019 has notified that the retail outlets established at departure area of the international airport beyond immigration counters shall be entitled to claim refund of all applicable Central tax, Integrated tax, Union territory tax and Compensation cess paid by them on inward supplies of indigenous goods received by them for the purposes of subsequent supply of goods to outgoing international tourists i.e. to a person not normally resident in India, who enters India for a stay of not more than six months for legitimate non-immigrant purposes against foreign exchange.

We conclude from the above discussion that Goods sold from duty-free shops is to be treated as ‘export of goods’ and are not liable to pay GST.