Sandeep Patil Vs Union of India and Others (Bombay High Court)
The impugned show cause notices allege that the goods imported by the petitioner from outside India into the special warehouse would constitute import of goods under the proviso to section 7(2) of the IGST Act, and thereby, liability of payment of tax under the proviso to section 5 of IGST Act is alleged. It further alleges non-payment of SGST on the transactions of sale of goods effected to the international passengers going out of India.
We find sufficient merit in the submissions of the petitioner that import of goods in terms of section 2(10) of the IGST Act means bringing the goods into India from a place outside India. As per Section 7(2) of the IGST Act, goods imported into the territory of India, till such time it crosses the customs frontier of India, shall be treated to be a supply of goods in the course of inter-State trade and commerce. As per Section 2(4) of the IGST Act, the customs frontier of India means the limits of a customs area as defined in section 2 of the Customs Act. The duty free warehouse and DFS of the petitioner are only within the limits of the customs area and therefore, the goods lying therein do not cross the customs frontier and consequently, the importation will continue to be only in the state of inter-State trade and commerce in terms of Section 7(2).
We find sufficient merit in the submissions of the petitioner that petitioner only files bill of entry for warehousing. No liability under section 12 read with section 3(12) of the Customs Tariff Act would get triggered at all by filing bill of entry for warehousing. The customs duty and IGST is leviable only on removal of warehoused goods from the customs area, which happens when the arriving passengers leave the custom area. Since, the goods sold by DFS to arriving passengers do not leave the customs area, DFS is neither liable to pay customs duty, nor IGST.
We also find merit in the contention of the Petitioner that both before and after the introduction of GST, the sales to arriving passengers continue to be sales in and/or from the custom area, as at the point of sale in DFS, the goods have neither crossed the customs frontier nor have they been cleared for home consumption by DFS. Accordingly, neither customs duty, nor Integrated Tax, is payable by DFS.
Furthermore, we find merit in the contention of the petitioner that arriving passenger’s baggage is exempt from the integrated tax in view of the Customs Notification No. 43/2017-Cus dated 30th June 2017 and IGST Notification No. 2/2017 IGST (rate) dated 28th June 2017. In view of the above exemption read with the duty free allowance available under the Baggage Rules applicable to arriving passengers, neither customs duty (upto the permitted baggage allowance) nor IGST is levied on such goods. Such import of goods by arriving passengers across custom frontier as passenger baggage is therefore an exempt supply under the GST, hence no IGST is payable by either the DFS on its imports, or on supply to arriving passengers. The arriving passengers are also not required to pay any IGST on crossing the custom frontiers, in view of the above exemption read with the duty free allowance under the Baggage Rules.
In the backdrop above, in our view, consequently, the charging provision that will get attracted is only the proviso to section 5 of the IGST Act, which again mandates two aspects:
(a) the IGST will be levied only at the points when the duties of customs are levied on such goods under section 12 of the Customs Act read with Section 3 of the Customs Tariff Act, 1975; and
(b) the point of levy under section 12 of the Customs Act would arise only when a bill of entry is filed under section 68 of the Customs Act. This Provision relates to warehoused goods meant for home consumption and therefore, liability to pay duty occurs only when a bill of entry for home consumption is filed.
Significantly, in view of the CGST (Amendment) Act, 2018 effective from 1st February 2019, supply of warehoused goods before clearance for home consumption have been notified/classified under Schedule-III of the CGST Act as activities or transactions, which shall be treated neither as a supply of goods, nor a supply of services. Accordingly, effective from 1st February 2019, sale of goods from arrival DFS falls under entry 8(a) of Schedule-III to CGST/SGST Act. However, Since, supply of goods from departure DFS is “export” and the same is not cleared for home consumption, the same does not fall under Schedule-III of CGST/SGST Act.
32. The Supreme Court of India in the matter of Kiran Spinning Mills vs. Collector of Customs [AIR 2000 SC 3448] has held thus :
6. …………………… That apart, this Court has held in Sea Customs Act, [1964(3) SCR 787 at page 803] that in the case of duty of customs the taxable event is the import of goods within the customs barriers. In other words, the taxable event occurs when the customs barrier is crossed. In the case of goods which are in the warehouse the customs barriers would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country. ……………….. The import would be completed only when the goods are to cross the customs barriers and that is the time when the import duty has to be paid and that is what has been termed by this Court in 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 at page 823] Sea Customs Case as being the taxable event. The taxable event, therefore, being the day of crossing of customs barrier, and not on the date when the goods had landed in India or had entered the territorial waters.
…… ”
33. In Garden Silks Mills Ltd. Vs. Union Of India [1999 (113) ELT 0358 (SC)] the Supreme Court has held thus :
“16…….. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.”
Needless to say that if the duty free shop, which caters to the outgoing or incoming international passengers, is subjected to local taxes by the State, the tax burden will increase and the price of the goods, which are supposed to be free of taxes and duties, will go up, and the same would prevent the duty free shops in India from competing with DFSs at international airports elsewhere in the world. This will also hamper and prejudicially affect our foreign trade, and augmentation and conservation of foreign exchange. In our opinion, this will also negate the intent and purpose of Article 286 of the Constitution of India.
In the backdrop of above, we are of the view that impugned order and the impugned show cause notice dated 10th January 2019 are manifestly arbitrary and in the teeth of the purpose and intent of Article 286 of the Constitution of India and the provisions of the GST law read with the Customs Act, 1962.
Hence, writ petition bearing W.P. No.1511 of 2019 succeeds. The impugned order dated 10th January 2019 and the impugned show cause notices are quashed and set aside. So far as Writ Petition No. 1535 of 2019 is concerned, we refrain from issuing any declaration since the Petitioner is held to be entitled for refund of ITC and as such no prejudice will be caused to them, if they would first pay GST on the services provided to DFSs by MIAL and take ITC of the entire tax amount, and thereafter claim refund of the same by following the procedure contained in Rule-89.
In the light above, criminal application no. 8 of 2019 taken out in Criminal PIL No. 14 of 2019, is rendered infructuous and the same is, therefore, dismissed.
