In the earlier period of indirect taxation i.e before the roll out of GST (prior to 1st July, 2017) the duty free shops at the international airports were exempt from the levy of Central Sales Tax (CST ) and Value added Tax (VAT) as sale from such duty free shops were considered as exports and supplies were considered as taking place beyond the customs frontiers of India.
Now in the current indirect taxation regime i. e in GST , we need to understand how the law makers interpret the tax liability of the duty free shops and for that we have to rely and interpret the following definition of CGST and IGST .
Section 2 (56) of CGST “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters;
Section 2 (27) in the Customs Act, 1962
“India” includes the territorial waters of India;
Section 2 (23) of IGST “zero-rated supply” shall have the meaning assigned to it in section 16;
Section 2 (5) of IGST “export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;
Recently the New Delhi bench of the Authority for Advance Ruling (AAR) in an application filed by M/s Rod Retail Private Limited (The Applicant ) which runs a retail outlet at Indira Gandhi International Airport, New Delhi. has held that the supply of goods to the international passengers going abroad from ‘Duty Free’ shops may be taking place beyond the customs frontiers of India under Integrated GST Act, however, the said shops are within the territory of India under the Central GST Act.
According to the Bench
> The duty free shops is within the territory of India as defined under section 2(56) of the CGST Act, 2017 and section 2(27) of the Customs Act, 1962,
>The duty free shop is not outside India.
>The applicant is not taking goods out of India and hence their supply cannot be called ‘export’ under Section 2(5) of the IGST Act, 2017, or ‘zero rated supply’ under Section 2(23)
Conclusion : Looking into the logic and interpretation of the bench the applicant is required to pay GST at the applicable rates. The impact of this ruling will make Duty free shops uncompetitive with shops outside airports.