No GST on sale from Duty Free Shops

Case Details:

Issue- In the above case, The applicant wants a refund of ITC pursuant to sale of duty free goods from Duty Free Shops (DFS) at the departure area of airport.  The goods were imported and sold to international passengers both inbound and outbound. Show cause notices were issued alleging 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. SCN further alleged non-payment of SGST on the transactions of sale of goods effected to the international passengers going out of India.

Held- It was observed that examining the provisions of Section 2(11) of the Act of 1962 read with Section 286 of the Constitution of India, the transaction of DFS would be said to have taken place outside India. It was further observed that if the duty free shop is subjected to local taxes by the State, the tax burden will increase the price of the goods, and the same would prevent the duty free shops in India from competing with DFSs internationally.   It was held that 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.  Further, since the goods do not cross the customs frontier, the importation will continue to be only in the state of inter-State trade and commerce in terms of Section 7(2).