Sandeep Patil vs. Union Of INDIA And Ors

Held

The Court held that sales by Duty Free Shops (DFS) to departing international passengers are considered exports and are not subject to GST. The Court reasoned that these sales occur within the customs area and are not cleared for home consumption. The taxable event for import duty, and by extension IGST, arises only when goods are cleared for home consumption by filing an ex-bond bill of entry under Section 68 of the Customs Act, 1962. The Court also noted that effective from February 1, 2019, the supply of warehoused goods before clearance for home consumption is treated neither as a supply of goods nor services under Schedule-III of the CGST Act. For sales to arriving passengers, the Court found that such imports are exempt supplies under GST, and arriving passengers are not required to pay IGST due to exemptions read with duty-free allowances under the Baggage Rules. The Court further held that subjecting DFS to local taxes would increase prices, hinder competition, and negatively impact foreign trade and foreign exchange, thus negating the intent of Article 286 of the Constitution. The impugned order denying ITC refund and show cause notices were quashed and set aside. Regarding WP 1535/2019, the Court refrained from issuing a specific declaration on concession fees, stating that since the petitioner is entitled to an ITC refund, no prejudice would be caused if they paid GST on services from MIAL, took ITC, and then claimed a refund under Rule 89.

Facts

The petitioners, Flemingo Travel Retail Limited, operate duty-free shops (DFS) at Mumbai International Airport, located beyond India's customs frontiers. The Deputy Commissioner of Sales Tax passed an order denying a refund of input tax credit (ITC) for sales of duty-free goods to departing passengers. The petitioners challenged this order, arguing that these sales, along with sales to arriving passengers and receipt of input services, should not be subject to GST. They contended that the goods, whether imported or procured from SEZ units, remain within the customs area until cleared for home consumption. The sales to departing passengers are considered exports, and sales to arriving passengers are imports, both occurring within the customs area. The petitioner in WP 1535/2019 also sought a declaration that concession fees paid to Mumbai International Airport Limited (MIAL) are not liable to GST.

Key Issues

1. Whether sales of goods by Duty Free Shops (DFS) to departing international passengers constitute an export and are thus outside the purview of GST, considering they occur within the customs area and are subject to specific customs procedures, as per Article 286 of the Constitution of India and the principles laid down in Indian Tourist Development Corp. Ltd v. CCT? (Mixed Law and Fact) 2. Whether sales of goods by DFS to arriving international passengers are considered imports and exempt from GST, particularly in light of customs regulations and the Baggage Rules? 3. Whether the consideration paid as concession fees by DFS to MIAL for the use of licensed premises is liable to GST? Petitioner's Arguments: The petitioners argued that all transactions, including sales to departing and arriving passengers and the receipt of input services, take place within the customs area. Sales to departing passengers are exports, and sales to arriving passengers are imports, neither of which should attract GST. They relied on Article 286 of the Constitution and the Supreme Court's ruling in Indian Tourist Development Corp. Ltd v. CCT. They also argued that the taxable event for import duty, and consequently for IGST, arises only when goods are cleared for home consumption by filing an ex-bond bill of entry, as per Section 68 of the Customs Act, 1962. They cited Kiran Spinning Mills vs. Collector of Customs and Garden Silks Mills Ltd. Vs. Union Of India to support their contention on the taxable event. Revenue/State's Arguments: The Respondent-State and Union of India opposed the writ petitions, but their specific arguments are not detailed in the provided text.