No GST on Duty Free Shop Sales, But GST on Services Stays: Punjab & Haryana High Court

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Case Name

M/s Flemingo Duty Free Shop Private Limited vs. Union of India and others (High Court of Punjab & Haryana at Chandigarh)

CWP No. 20 of 2018 (O&M)

Date: 25th January 2024

Key Takeaways

• No GST on Sales: Sales by duty-free shops to international passengers are not subject to GST, as these are considered outside the customs frontiers of India.
• GST on Services: GST is applicable on services provided by the airport authority (like concession fees) to the duty-free shop operator.
• Refund Mechanism: The duty-free shop operator must pay GST on services, claim ITC, and then apply for a refund as per Section 54(3) of the CGST Act, 2017 and Rule 89 of the CGST Rules, 2017.
• Interest Liability: If the operator withholds GST on services, they are liable to pay interest on the withheld amount.
• Binding Agreement: The concession agreement between the operator and AAI requires the operator to pay all applicable taxes on services.

Issue

Central Legal Question:

Can GST be levied on the sales and/or services related to duty-free shops at international airports, and if so, who is responsible for paying and claiming refunds?

Facts

• Parties:
• Petitioner: M/s Flemingo Duty Free Shop Private Limited (operates duty-free shops at airports, including Amritsar).
• Respondents: Union of India, Airports Authority of India (AAI), and others.
• Background:
• The petitioner entered into a concession agreement with AAI to operate duty-free shops at Amritsar airport.
• AAI raised monthly invoices for a minimum guarantee/revenue share, termed as “Licence Fee.”
• The petitioner was granted a special warehouse license under Section 58-A of the Customs Act, 1962.
• The petitioner argued that no GST should be levied on sales or services, and sought a refund of GST already collected.
• Interim orders were passed restraining authorities from collecting GST, subject to the petitioner providing indemnity and bank guarantees.
• The Supreme Court and various High Courts had previously ruled that sales by duty-free shops are not subject to indirect taxes, but GST on services (like concession fees) remained a point of contention.

Arguments

Petitioner (Flemingo Duty Free Shop)

• No GST should be levied on sales or services at duty-free shops, as these are outside the customs frontiers.
• Sought a refund of GST already collected by AAI on licence fees.
• Cited Supreme Court and High Court decisions supporting the non-applicability of indirect taxes on duty-free shop sales.

Respondents (Union of India, AAI)

• GST on services (like concession fees) is applicable and must be paid by the petitioner.
• The amount paid as GST by AAI to the government should be reimbursed by the petitioner, who can then claim a refund as per law.
• The concession agreement explicitly makes the operator responsible for all applicable taxes.

Key Legal Precedents

• Commissioner of CGST and Central Excise Mumbai East Vs. Flemingo Travel Retail Ltd. (Supreme Court, 2023):
• Held that no indirect tax could be imposed on duty-free shops at airports, as they are outside the customs frontiers.
• Sandeep Patil and others v. Union of India and others (2019 (31) GSTL 398, Bombay High Court):
• Confirmed that sales by duty-free shops are not subject to GST, but GST on input services (like concession fees) must be paid, ITC claimed, and refund sought as per Rule 89 of the CGST Rules, 2017.
• CIAL Duty Free and Retail Services Limited v. Union of India (Kerala High Court, CWP © No.12274 of 2020):
• Reiterated the above principles and clarified the refund mechanism for ITC on input services.
• Hotel Ashoka v. Assistant Commissioner of Commercial Taxes (2012 (278) ELT 433 (SC)):
• Cited for the principle that goods in bonded warehouses have not crossed customs frontiers.
• A-1 Cuisines Private Limited v. Union of India (2019 (22) GSTL 326 (Bombay)):
• Supported the non-applicability of GST on sales by duty-free shops.
• Section 54(3) of the CGST Act, 2017 and Rule 89 of the CGST Rules, 2017:
• Prescribe the procedure for claiming refunds of ITC on zero-rated supplies.

Judgement

• Who Won:
• The court ruled in favor of the respondents (Union of India and AAI) regarding GST on services, but in favor of the petitioner regarding GST on sales.
• Legal Reasoning:
• Sales by duty-free shops to international passengers are not subject to GST, as per Supreme Court and High Court precedents.
• However, GST is applicable on services (like concession fees) provided by AAI to the duty-free shop operator, as per the concession agreement and legal precedents.
• The petitioner must reimburse AAI for the GST already paid on services, along with 8% interest per annum from the date of deposit.
• The petitioner can then claim ITC and/or refund from the government as per the prescribed procedure.
• Orders:
• Petitioner to reimburse Rs. 3,83,38,993/- to AAI within four weeks, with 8% interest.
• Petitioner to apply for ITC/refund as per law, and authorities to process the application within eight weeks.
• The case and all connected applications were disposed of.

FAQs

Q1: Does this mean duty-free shops don’t have to pay GST at all?

A: No, duty-free shops don’t have to pay GST on sales to international passengers, but they must pay GST on services (like concession fees) provided by the airport authority.

Q2: Can the duty-free shop operator get a refund of the GST paid on services?

A: Yes, the operator can claim Input Tax Credit (ITC) on GST paid for services and then apply for a refund as per Section 54(3) of the CGST Act, 2017 and Rule 89 of the CGST Rules, 2017.

Q3: What happens if the operator doesn’t pay GST on services?

A: The operator is liable to pay interest (8% per annum) on the withheld GST amount until it is reimbursed to the airport authority.

Q4: What is the significance of this judgment?

A: The judgment clarifies the tax treatment for duty-free shops: no GST on sales, but GST on services applies, with a clear refund mechanism for the operator.

Q5: What legal documents and sections are most relevant here?

A: Key references include Section 54(3) of the CGST Act, 2017, Rule 89 of the CGST Rules, 2017, and the cited Supreme Court and High Court cases.