GST and India’s duty-free shops
It is not uncommon for duty free shopping to be the highlight of an airline passengers’ journey while travelling internationally. Duty free shops at International Airports in India attract a lot of revenue as it is not uncommon for passengers to shop for goods that do not suffer the levy from local taxes in that State.
With the implementation of Goods and Services Tax ( GST ) in 2017, there were varying opinions on whether GST should be applicable to these retail outlets or commonly known as ‘duty free’ shops at International Airports. Customs duty is triggered at the time of filing of Bill of Entry for Home Consumption after which the goods cross the customs barrier and become a part of Indian goods. A provision under the Customs law states that in order to place the goods in a Custom Bonded Warehouse, one has to file a Bill of Entry for warehousing ( into bond Bill of Entry).
Until the goods are cleared from the Bonded Warehouse, no Customs duties have to be paid once the Bill of Entry for Home Consumption is filed. The body that governs the constitution of Duty Free shops in India also governs the Customs law dealing with Custom Bonded Warehouses. Only on Customs Authority’s permission can you move the goods from a Custom Bonded Warehouse to a Duty Free store at the Airport for sale. Hence, there are two things that fall under the GST consideration - whether the supply of goods by retail outlets should attract the levy of GST and whether the supply of goods to these retail outlets should be subjected to GST.
The GST council announced an Advance Ruling under which taxability of supplies made by a Duty Free store to outbound passengers were compliant with the GST law and would attract a levy. This Advance Ruling faced a lot of scrutiny from the Allahabad High Court and the Court then passed a ruling that exempted supplies made at these duty free stores from any form of levy. With respect to charging levy on supplies made to the retail outlets at Airports, another Constitutional Court - the Madhya Pradesh High Court ruled that supply of goods by an indigenous supplier will not qualify as an export under the GST law and will definitely be taxable under the GST regime.
The same ruling was opposed by the Allahabad High Court stating that the supplies by an indigenous supplier will not be taxable. This dichotomy awaits the Supreme Court’s decision with respect to the matter which will finally end the ambiguity. Recently, the Central Government issued a few exemptions and one of them included the supply of indigenous goods sold at duty free establishments to outgoing international tourists free of levy. This exemption from GST interestingly implies that the Government considers the supply of these goods compliant to the GST law. This exception calls for additional responsibilities on the seller’s behalf as he/she is required to maintain a separate record of sales to ‘outgoing international tourists’ who are essentially non-residents of India and who are allowed to stay in the country for not more than 6 months.
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