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2019 (10) TMI 360

..... he DFSs at MIAL can be saddled with burden of taxes or restrictions despite the provisions of Article 286 of the Constitution of India and the ratio laid down by the Apex Court in the matter of DFSs situated at Bangalore International Airport in the case of Indian Tourist Development Corp. Ltd v. CCT [2012 (2) TMI 62 - SUPREME COURT]? HELD THAT:- In view of Section 5(2) read with Section 19(1) of the Sale of Goods Act, 1930, that the condition of sale/declaration printed on the invoice of DFS, pursuant to signatures by the outbound passenger and cashier, acts as a contract agreeing that the property in the goods purchased from DFS passes to such outbound passenger only when such outbound passenger lands at the final destination. Section 2(5) of the IGST Act defines “export” to mean “taking goods out of India to a place outside India”. In view of the above we are satisfied that supply by the DFS of the Petitioner to the outbound passenger constitutes exports by the DFS. Consequently, in terms of section 16(1) of the IGST Act, it becomes a zero rated supply - the Respondent-Authority has erroneously held that the Petitioner does not satisfy the crucial test of .....

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..... s by MIAL and take ITC of the entire tax amount, and thereafter claim refund of the same by following the procedure contained in Rule-89. - CRIMINAL APPLICATION NO. 8 OF 2019 IN PUBLIC INTEREST LITIGATION NO. 14 OF 2019, WITH ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1511 OF 2019, WITH WRIT PETITION NO. 1535 OF 2019 - 7-10-2019 - RANJIT MORE &SMT. BHARATI H. DANGRE, JJ. Advocates in Crim. Application No. 8 of 2019 : Mr. Annop U. Patil for the Applicant. Mrs. P. H. Kantharia for Respondent No.1 Mr. Vikram Nankani, Senior Advocate with Mr. Ashish Kamat, Mr. Abhay Jadeja, Mr. Varun Satiya, Mr. Arun Unnikrishnan i/b Crawford Bayely & Co., for Respondent No.2 Advocates in OOCJ Writ Petitions : Mr. Vikram Nankani, Senior Advocate with Mr. Ashish Kamat, Mr. Abhay Jadeja, Mr. Varun Satiya, Mr. Arun Unnikrishnan i/b Crawford Bayely & Co., for the Petitioner. Mr. Jitendra Brijbhushan Mishra for Respondent No. 1. Mr V. A. Sonpal, Special counsel with Mr. Himanshu Takke, Ms. Jyoti Chavan AGP for the Respondent-State. Mr. Vijay Jain i/b Mr. Sriram Sridharan for Respondent No. 5. Judgment [Per Ranjit More, J.] : 1. The criminal application bearing No.8 of 2019 is filed b .....

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..... ve carefully perused the records and the statutory provisions. 6. Following facts have emerged from the record. : (a) The Petitioner in DFSs sells goods to international passengers, who are either leaving India (departing passengers) or arriving into India (arriving passengers). The goods - generally chocolates, perfumes, cosmetics, cigarettes, alcohol etc. are primarily imported or occasionally procured from SEZ units in India (hereinafter collectively referred to as the warehoused goods ). However, bulk of the sales (almost 98%) are of the imported / warehoused goods, before they cross customs frontiers or barriers. Further goods procured from domestic market were never sold to the arriving passengers. (b) The DFSs also receive various input services such as leave and licence arrangements of areas/space, maintenance services, CHA services, professional services, etc., from different service providers located inside or outside the DFS area. (c) There are three types of transactions which are in issue - (I) Sales by DFSs to departing passengers. (ii) Sales by DFSs to arriving passengers. (iii) Receipt of input services by DFSs. (d) The words import and export are defined in the Cus .....

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..... mbai Duty Free) out of India and undertake not to use/consume these till I land at my destination out of India, where I become owner of these goods. (j) In sales from DFS of the Petitioner, the out-bound passenger is under an obligation and compulsion to carry the goods out of India as a carrier for export. The sales in DFS are undertaken under the supervision of customs authorities, as provided in the Standing Order and Public Notice, which ensures that once the outbound passenger purchases goods, such passenger either boards the aircraft leaving India and if for some reason, such passenger is not able to board the aircraft, the goods have to be returned back to DFS whereupon the sale is declared void and refund is given. (k) This is further strengthened with the aid of paragraph 4.3 of the Public Notice bearing no. 154/2004 dated 22nd July 2004 relating to Customs Procedures for Operation of DFS, which reads as under- 4.3 Customs supervision over sales shall be to ensure that persons other than an International passenger do not purchase goods from the DFS and passengers who purchase goods from DFS either board the aircraft leaving India or are cleared duly in the usual manner by .....

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..... at Bangalore International Airport was considered by the Supreme Court in Hotel Ashoka (supra), the same is not relevant in the present context. The Supreme Court in the said case has dealt with a case under VAT and CST laws and not with regard to provisions of GST. There is no event of sale in the course of imports. (iii) It was further submitted that though the various cases/judgments (of the Supreme Court, High Courts and Tribunals) are in favour of the Petitioner and also concerning the DFSs, the same are not applicable, for the reason that they are in the context of either Customs Act, Service Tax, VAT or COPTA etc., and not directly concerning GST laws. (iv) It was also submitted that as provided in Section 1(2) of the CGST Act, the said Act extends to the whole of India and as per Section 1(2) of the MGST Act, it extends to the whole of State of Maharashtra. The DFS is located in Maharashtra limits and within India, since the international Airport itself is in India, and, therefore, the operations of the Petitioner are in taxable territory , where supplier and receiver are located in India at the time of supply. The taxable territory is defined in Section 2(109) of the Act .....

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..... same are not liable to GST. (vii) It was then urged that petitioner s gross supply includes supply to both outgoing and incoming passengers, and even if it is assumed without admitting that Petitioner is entitled to refund, then also, supply to incoming passengers cannot be entitled to refund, notwithstanding the order of Central Government, challenge against which is dismissed by the Supreme Court, wherein it has been held by the Central Government that : …such goods need to suffer Custom Duty on being exported by DFS and imported by passengers in terms of Section 77 Custom Act 1962 , (viii) Next, it was urged that the issues that tax burden would increase the price of the products and the DFS would not be competitive in International market, are wholly irrelevant. To take home their contentions, the learned counsel for the Respondents pressed into service following decisions / cases : (a) M/s. Deepmani vs. State of Maharashtra (Sale Tax Reference No.9 of 2002); (b) Burmah Shell Oil Storage and distributing Co. of India Ltd. vs. CTO [(1961) 1 SCR 902]; (c) Madras Marine & Co. vs. State of Madras [(1986) 63 STC 0169 (SC)]; (d) Narang Hotels and Resorts Pvt. Ltd. vs. Sta .....

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..... ters from competing in the world market and, in the case of import, will put a greater burden on the consumers. This will eventually hamper and pre-judicially affect our foreign trade and will bring about precisely that calamity which it is the intention and purpose of our Constitution to prevent. 9. The said judgment of the Constitution Bench was subsequently followed by the Supreme Court in India Tourist Development Corpn. Ltd. Through Hotel Ashoka v. CCT, [(2012) 3 SCC 204] in the matter of DFSs at international airport at Bengaluru. In that case, the assessment orders passed by the Assistant Commissioner of Commercial Taxes, Bengaluru were challenged in a writ petition before the High Court of Karnataka. The said writ petition was dismissed on the ground of availability of alternate remedy. Writ appeal preferred there-against was also dismissed. However, civil appeal there-against was entertained by the Supreme Court, inter alia, on finding that when the legal position is very clear and the law is also in favour of appellant, it would not be in the interest of justice to relegate the appellant to the statutory authorities. Then, the Supreme Court has observed thus : 11. So as t .....

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..... customs frontiers of India, as it is not in dispute that the duty-free shops of the appellant situated at the International Airport of Bengaluru are beyond the customs frontiers of India i.e. they are not within the customs frontiers of India. 21. If this is the factual and legal position, in our opinion, looking to the provisions of Article 286 of the Constitution, the State of Karnataka has no right to tax any such transaction which takes place at the duty-free shops owned by the appellant which are not within the customs frontiers of India. 22. Looking to the aforestated simple and factual legal position, in our opinion, it would not be much useful to discuss the judgments which have been referred to by the learned counsel appearing for the appellant. In our opinion, the legal position is so clear that it was not necessary for the learned counsel to refer to any judgment and merely by showing the aforestated factual aspects and legal provisions to the authority concerned, the appellant could have convinced the authority concerned that the sale effected at the duty-free shops of the appellant could not have been taxed by the State of Karnataka. 26. The learned counsel again subm .....

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..... economic zone, which is part of India, as defined. None of the decisions relied upon by the Respondents, pertain to DFSs. None of these cases relied upon by the Respondents were with regard to export of goods, as the goods are consumed in the aircraft, or do not have a specific foreign destination, where they can be said to be imported. Whereas in the present case, the destination of the goods purchased by the outbound passenger is clearly a foreign destination. The outbound passenger only acts as a carrier on behalf of the DFS, till reaching the final destination in a foreign country. 13. Further, the judgment of a co-ordinate Bench of this Court in the matter of Radhasons International (supra) relied upon by the Respondents, in paragraph 76 thereof clearly shows that the facts therein were distinguishable from the facts in the case judgment of Supreme Court of India in the matter of M/s. Hotel Ashoka (Indian Tourism Development Corporation Limited) (supra). 14. Moreover, the decision of Authority for Advance Rulings in the matter of Rod Retail Private Limited dated 27th March 2018 vide AR no. 01/DAAR/2018 in Application No. 01/ DAAR/2017 which is relied upon by the Respondents w .....

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..... h Court in its judgment dated 3rd May 2019 in Atin Krishna vs. Union of India & ors. (P.I.L. CIVIL NO. 12929 of 2019). Another co-ordinate Bench in A-1 Cuisines Private Limited Vs. Union of India (Writ Petition No. 8034 of 2018 , vide judgment dated 28.11.2018) has taken a similar view so far as the DFSs are concerned. All these judgments draw support from the judgment of the Supreme Court in Hotel Ashoka (supra). 18. We are also convinced in view of Section 5(2) read with Section 19(1) of the Sale of Goods Act, 1930, that the condition of sale/declaration printed on the invoice of DFS, pursuant to signatures by the outbound passenger and cashier, acts as a contract agreeing that the property in the goods purchased from DFS passes to such outbound passenger only when such outbound passenger lands at the final destination. Section 5(2) and Section 19(1) of the Sale of Goods Act, 1930 read as under- 5. Contract of sale how made- (1) ………………………. (2) Subject to the provisions of any law for the time being in force, a contract of sale may be made in writing or by word of mouth, or partly in writing and partly by word of m .....

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..... 21. In our view, the Respondent-Authority has erroneously held that the Petitioner does not satisfy the crucial test of sending of the goods to foreign destination where they would be received as imports , to deny the benefits of zero rated supply. 22. During the period between 1st July 2017 and 31st January 2019, the supply of goods from arrival DFSs is also treated as export by the central government vide order dated 31st August 2018 in a custom matter of Aarish Altaf Tinwala (supra) and this position has been affirmed by the Supreme Court by rejecting the writ petition filed against this central government order vide its order dated 10th May 2019 in Writ Petition (c) No.564 of 2019. Hence by legal fiction, the supply of goods from arrival DFS would also be an export of goods under the IGST Act, and hence, a zero rated supply. Since the zero-rated supply qualifies for 100% ITC, the Petitioner is eligible for the refund thereof. 23. With effect from 1st February 2019, in view of the CGST (Amendment) Act, 2018, supply of warehouse goods before clearance for home consumption have been notified/ classified as activities or transactions which shall not be treated as a supply of goods .....

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..... ner that petitioner only files bill of entry for warehousing. No liability under section 12 read with section 3(12) of the Customs Tariff Act would get triggered at all by filing bill of entry for warehousing. The customs duty and IGST is leviable only on removal of warehoused goods from the customs area, which happens when the arriving passengers leave the custom area. Since, the goods sold by DFS to arriving passengers do not leave the customs area, DFS is neither liable to pay customs duty, nor IGST. 28. We also find merit in the contention of the Petitioner that both before and after the introduction of GST, the sales to arriving passengers continue to be sales in and/or from the custom area, as at the point of sale in DFS, the goods have neither crossed the customs frontier nor have they been cleared for home consumption by DFS. Accordingly, neither customs duty, nor Integrated Tax, is payable by DFS. 29. Furthermore, we find merit in the contention of the petitioner that arriving passenger s baggage is exempt from the integrated tax in view of the Customs Notification No. 43/2017-Cus dated 30th June 2017 and IGST Notification No. 2/2017 IGST (rate) dated 28th June 2017. In vi .....

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..... hich 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. ……….The import would be completed only when the goods are to cross the customs barriers and that is the time when the import duty has to be paid and that is what has been termed by this Court in IN RE: The Bill to amend Section 20 of the Sea Customs Act, 1878 and Section 3 of the Central Excise Act, 1944 [(1964) 3 SCR 787 at page 823] Sea Customs Case as being the taxable event. The taxable event, therefore, being the day of crossing of customs barrier, and not on the date when the goods had landed in India or had entered the territorial waters. ….. . 33. In Garden Silks Mills Ltd. Vs. Union Of India [1999 (113) ELT 0358 (SC)] the Supreme Court has held thus : 16 …….. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bi .....

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