Revenue Neutrality Cannot Override Statutory Mandate under GST – Madras HC

Case Title: Union of India v. Flemingo Duty Free Shop Pvt. Ltd. & Ors.
Court: High Court of Judicature at Madras
Case No.: W.A. No.674 of 2023 with C.M.P. No.6753 of 2023
Judgment Date: 29.04.2025 (Reserved on 22.04.2025)
Category of Dispute: Refund of GST / Zero-rated supply / Revenue Neutrality
Relevant Sections: Section 16 IGST Act, 2017; Section 54 CGST Act, 2017; Section 58A Customs Act, 1962

Facts of the Case (Para 2 – 2.6)

1. The petitioner, Flemingo Duty Free Shop Pvt. Ltd., operates Duty-Free Shops (DFS) at Chennai International Airport under a concession agreement with the Airports Authority of India (¶2.2, 2.3).

2. The dispute related to levy of CGST/SGST on concession fee/minimum guarantee payable to AAI for DFS operations at arrival and departure terminals (¶2.3).

3. DFS supplies were claimed as zero-rated supplies under Section 16 IGST Act, as goods sold were beyond customs frontiers of India (¶2.3, 2.4).

4. For July 2017–Dec 2017, petitioner paid GST and claimed refund; for Jan 2018–June 2019, AAI paid GST without recovering from DFS (~₹18.68 crores); and for July 2019–March 2021, no tax was collected due to stay order (¶2.5).

5. The Single Judge directed (a) refund of GST paid between Jan 2018–June 2019, and (b) exemption from levy between July 2019–March 2021 since payment followed by refund would be revenue neutral (¶2.4–2.6).

Question(s) in Consideration (Para 2.7 – 2.8)

1. Whether the concession fee payable to AAI by DFS constitutes taxable supply despite being zero-rated?

2. Whether revenue neutrality can be the basis for dispensing with statutory mandate of tax payment followed by refund under Section 54 CGST Act?

Observations of the Court (Para 2.7 – 2.11)

1. Revenue conceded that DFS supplies qualify as zero-rated under Section 16 IGST Act (¶2.7).

2. The challenge of Union of India was only to the Single Judge’s reasoning that revenue neutrality justified bypassing statutory procedure (¶2.8).

3. The Division Bench noted that Supreme Court has held in CIT v. J.K. Charitable Trust (2009) and CCE v. Narmada Chematur (2005) that appeals should not be pursued where tax effect is revenue neutral (¶2.9).

4. However, authorities are free to verify if the situation is truly revenue neutral or involves loss of revenue for Jan 2018–March 2021 (¶2.10).

5. From April 2021 onwards, petitioner agreed to pay GST first and then claim refund, which remained undisturbed (¶2.11).

Judgment of the Court (Para 2.11 – 3)

1. The appeal of Union of India was disposed of without interference in the Single Judge’s order since the case involved revenue neutrality (¶2.9).

2. Refund applications by AAI were directed to be processed within 4 weeks with applicable interest (¶2.12).

3. Liberty granted to authorities to verify if revenue neutrality exists before granting refund (¶2.10).

4. Directions for payment of GST followed by refund post 01.03.2021 remain intact (¶2.11).

Between Fine Lines (Simple Summary in 5 points)

1. Duty-Free Shops are treated as making zero-rated supplies under GST.

2. For Jan 2018–June 2019, GST wrongly remitted by AAI must be refunded.

3. For July 2019–March 2021, no GST was payable due to interim stay.

4. From April 2021, DFS must pay GST on concession fees and then claim refund.

5. The Court upheld revenue neutrality but left scope for authorities to verify actual tax impact.

Summary of Referred Cases

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