Indian GST ruling at Delhi International will not hit duty free retailers

Indian GST ruling at Delhi International will not hit duty free retailers

INDIA. A decision by the Authority for Advance Ruling (AAR) on the applicability of a new Goods & Services Tax (GST) to a retailer at Delhi Indira Gandhi International Airport (IGIA) will not affect duty free stores, according to two informed sources that The Moodie Davitt Report has contacted.

According to a Press Trust of India report that was widely circulated on Sunday in the Indian media, the AAR has ruled – in relation to an application filed by Rod Retail Pvt Ltd – that the company cannot be exempted from paying GST. Rod Retail operates a Sunglass Hut duty paid shop in Terminal 3 (International).

The new tax came into effect on 1 July 2017, replacing indirect tax laws that previously existed in India encompassing, for example, VAT, central sales tax (CST) and excise duty. Indian duty free sales are exempt from such levies – as in many other jurisdictions – because sales from airport departure shops are considered exports.

The Press Trust of India quotes AAR, part of India’s Ministry of Finance, as follows on the matter: “The said outlet is not outside India… but 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. Hence 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) and Section 16(1) of the IGST Act, 2017. Accordingly, the applicant is required to pay GST at the applicable rates.”

The decision arises due to definition. The IGST Act says the export of goods requires them to leave the territory of India. The Customs Act defines that area as including India’s territorial waters as well.

Interpreting the AAR ruling

The ruling has been interpreted by some media as implying that international passengers buying goods at duty free shops at the airport will have to pay the GST as they are ‘not free from duties’ under the new indirect tax regime.

However, reliable Indian sources contacted by The Moodie Davitt Report stated that the ruling specifically applies to Rod Retail – a domestic retailer that was seeking a GST exemption – and not to major duty free and travel retail operators in the country such as Flemingo International and Delhi Duty Free.

Another source said it was seeking clarity on the ruling, but added: “It does not apply to retailers that operate under a customs bond. Those goods are effectively never imported. Rod Retail sources domestically and so has a different treatment.”

Duty free shops were exempt from the levy of central sales tax (CST) and value added tax (VAT) prior to the roll-out of GST last summer. If they were forced to apply the GST to any of their products they would lose some price advantage compared to the domestic market.

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