No GST on sales at duty-free stores, says Allahabad High Court

NEW DELHI: Multiple court rulings on payment of goods and services tax (GST) at dutyfree shops are making life confusing for those buying perfumes and chocolates from these stores.

A recent Allahabad high court judgment may, however, provide some relief with the court ruling that there shall be no tax levied in case of purchases made at duty free stores at the arrival or departure terminals. The court held that tax will not be levied as the goods never cross customs border and passengers carry the items as their personal effect.

The ruling is similar to the one by Karnataka high court where in case of Flemingo Duty Free Shop, it was held that sale or purchase by such stores would be a transaction in the course of export or import.

But what complicates matters is a ruling by the MP high court in the case of Vasu Clothing, where it held that the transactions were liable to GST as supply to a duty-free shop by an Indian supplier is not to “a place outside India” and therefore such supplies do not qualify as exports under GST.

Moreover, the Authority for Advance Ruling (AAR) had held that supply of goods to passengers going abroad from duty-free shops at Delhi International Airport is liable to GST. Alcohol, which is the most popular item at duty-free shops, is outside the ambit of GST.

“Applicability of GST on duty-free shops has been a perennial issue under the erstwhile VAT regime with multiple diverse rulings. The situation has not improved even under GST on account of diverse rulings by MP and Karnataka high courts. The new ruling seems to have rightly interpreted the provisions under the GST law as well as baggage rules to arrive at the conclusion which appears to be rational and in line with the legislative intent,” said Harpreet Singh, partner at consulting firm KPMG.

The Allahabad HC order came in response to a PIL filed by Atin Krishna on the grounds that the exchequer is losing revenue. The petitioner has argued that the respondent is liable to pay Central and state GST on the goods sold to international passengers at its departure terminal and is ineligible to get refunds of the accumulated input tax credit.

The respondents countered it saying that the supply of goods till they cross customs border should be considered as an inter-state supply under the integrated GST.