Supreme Court Recalls Judgment that Indirect Tax can be levied on Duty-Free Shops at Airport

Supreme Court Recalls Judgment that Indirect Tax can be levied on Duty-Free Shops at Airport

The Supreme Court has recalled its Division Bench verdict of April 10, 2023 wherein it had determined that Duty-Free Shops located within the arrival or departure terminals of airports exist beyond India's customs boundaries. Consequently, these shops were deemed exempt from any indirect taxes, such as the Service Tax.

In response to the review plea filed by the Commissioner of CGST and Central Excise regarding the Supreme Court's decision in the case of Commissioner of CGST and Central Excise vs Flemingo Travel Retail Ltd [Civil Appeal Diary No. 24336/2022 dated 10.04.2023], a Bench led by Chief Justice of India Dr. DY Chandrachud, along with Justices Sanjay Karol and Manoj Misra, acknowledged that the initial verdict had neglected to document or take into account any of the arguments put forth by the Union of India during the appeal. The Bench highlighted that the judgement had solely referenced the viewpoints presented by the respondent - the assessee.

In the review plea submitted to the Supreme Court, the Union of India contended that the regulatory framework concerning goods operates under a separate framework compared to the regulations governing the imposition of service tax under the Integrated Goods and Services Tax (IGST) regime.

Additional Solicitor General N. Venkataraman put forth before the Supreme Court that the perspective upheld by the Bombay High Court in the case of Sandeep Patil vs Union of India [W.P. No. 1511 of 2019] and the Kerala High Court in the case of CIAL Duty-Free and Retail Services Ltd vs Union of India [W.P. (C) No. 12274 of 2020], which had been cited by the Supreme Court in its decision, specifically pertains to matters concerning goods and does not relate to the imposition of service tax on the rental of immovable property.

The two High Courts had concluded that duty-free shops situated within international arrival or departure terminals should be regarded as zones located outside the customs boundaries of India.

Considering this perspective, the Court noted that the absence of such deliberation in the judgement being re-evaluated, coupled with the significant potential implications of the raised issue, has led them to conclude that the review should be granted.

It was also brought to the Court's attention that 25 additional appeals were awaiting the Supreme Court's consideration, all of which revolved around the same issue.

“We accordingly allow the review by recalling the judgement dated 10 April 2023. Civil Appeal No 2753 of 2023 shall stand restored to the file of the Court. The Civil Appeal shall stand tagged with the above appeals. The Registry shall obtain administrative directions so that all the appeals can be clubbed together and be heard by one Bench expeditiously,” the Court said.

The respondent, Flemingo Travel Retail Ltd, is actively involved in operating duty-free shops situated within the international arrival and departure terminals at Mumbai and Delhi airports. The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Mumbai, through an order issued on February 10, 2022, had granted approval for the assessee's appeal concerning the reimbursement of service tax connected to a rental transaction with Mumbai International Airport Limited.

Initially, the original authority responsible for adjudication, in a decision dated July 5, 2019, had dismissed the claims for reimbursement. This was based on the rationale that the imposition of service tax on the rental of immovable property for the relevant Duty-Free Shops had been accurately imposed and was not eligible for reimbursement in accordance with the regulations outlined in the Finance Act of 1994.

The CESTAT concluded that Duty-Free Shops located within international airports constitute a global marketplace that competes within an environment exempt from taxation. Consequently, the imposition of service tax was deemed to lack legal justification according to their findings.

Affirming the verdict of the CESTAT, the Supreme Court had ruled that Duty-Free Shops, regardless of their location in either arrival or departure terminals, exist beyond the customs borders of India. Consequently, subjecting them to any form of indirect taxation would be impermissible and unconstitutional. The Court had decisively stated that if any taxation were imposed, it could not be retained, and Duty-Free Shops would be entitled to reimbursement of such taxes without raising any procedural objections, including matters of limitation.