Allahabad High Court: A Division Bench of Pankaj Kumar Jaiswal and Rajnish Kumar, JJ. dismissed a PIL seeking to ensure that the provisions of the Central Goods and Services Tax Act, 2017 (CGST Act), Uttar Pradesh Goods and Services Tax Act, 2017 (UP GST Act) and Integrated Goods and Services Tax Act, 2017 (IGST Act) were implemented in proper manner qua the duty free shops.

The contention of the petitioner was that the respondent 3 was liable to pay IGST on the goods imported into the territory of India, which it was not doing. Though the Duty-Free Shops (DFS) operated by respondent 3 were in the State of Uttar Pradesh, the goods were sold to international passengers without charging the applicable taxes under CGST and SGST Acts. The petitioner further contended that the respondent was incorrectly permitted to claim a refund of an accumulated input tax credit of GST paid on service of renting of immovable property by AAI (Airports Authority of India) and procurement of domestic goods and services.

The petitioner submitted that a transaction must suffer GST the moment the supply of goods crossed the territorial waters of India. Therefore, the supply of imported goods to respondent 3 needed to be subjected to tax under Section 5 of the IGST Act. The petitioner further submitted that from the standpoint of Section 8 (1) of the IGST Act, the sale made to International passengers at the arrival terminal DFS of the respondent should have been considered as intra-state supply of goods and such sale should have attracted applicable CGST and SGST under Section 9(1) of the CGST Act and SGST Act and that the activity undertaken from the departure terminal DFS operated by the respondent was not an export of goods under GST Act as the essential ingredients to qualify for export were not being satisfied by the respondent.

The learned counsel for the respondent, Sheeran Mohiuddin Alavi, submitted that supply of goods to and from the DFS was before the clearance of imported goods for home consumption/export and the supply of goods from DFS at International Airports were considered as export of goods. He contended that as per Section 7(2) of the IGST Act, the supply of goods imported into the territory of India was considered as Inter-State Supply till they cross customs frontiers.

The Court held that the supply of imported goods to and from the DFS did not cross the customs frontier and hence these supplies were an inter-state supply in accordance to Section 7 (2) of the IGST Act. Consequently, the supply wasn’t liable to CGST and SGST under Section 9 of the CGST and SGST Act. It further observed that Section 7(2) read with proviso to Section 5(1) of the IGST Act stated that integrated tax on “goods imported into India” would be levied “at the point” when the duties of customs were levied on the said goods under Section 12 of the Customs Act, 1962 and at no other point. According to Section 12 of the Customs Act, duties of customs were levied on imported goods only when such goods were cleared for home consumption.

The Court relied on Kiran Spinning Mills v. Collector of Customs, (2000) 10 SCC 228 in which the Supreme Court had held, the taxable event occurs when the customs barriers are crossed. In the case of goods which are in the warehouse, the customs barriers would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country.”

It was held that when the goods were imported from outside India and kept in a customs warehouse and exported therefrom, the stage for payment of customs duty under Customs Act, 1962 did not arise. Hence neither Custom duty nor IGST was payable.

In view of the above, the petition was dismissed and it was held that the exemption under GST on goods supplied to and from the DFS was rightly conferred and the claims of any accumulated unutilized ITC were refundable to respondent 3.[Atin Krishna v. Union of India, PIL Civil No. 12929 of 2019, decided on 03-05-2019]

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