Vasu Clothing Private Limited VS Union of India

The petitioner, a Private Limited Company incorporated under the Companies Act, 1956, with its registered office at 75, Readymade Complex, Industrial Area, Pardeshipura, Indore, has filed a petition seeking relief from the obligation to pay goods and services tax (GST) on supplies made to Duty Free Shops (DFSs) at international airports in India.

The petitioner argues that following the enactment of the Central Goods and Services Tax Act, 2017, and the corresponding rules, they should be exempt from paying GST on goods and services supplied to DFSs. They contend that such supplies should be treated similarly to other tax-exempt transactions under the new legislation.

All over the world except India, businesses can operate without paying taxes. The petitioner, a manufacturer and exporter of garments in India, aims to supply goods to Duty Free Operators (DFOs). These DFOs sell products through Duty Free Shops (DFSs). The petitioner explains that DFOs in India import goods such as liquor, tobacco products, souvenirs, eyewear, watches, fashion items, chocolates, and perfumes by filing an import general manifest and a Bill of Entry for warehousing with the customs department, all without paying import duty on the first importation, subject to certain conditions. The Bill of Entry identifies the DFO as the importer, and the imported goods are stored in a customs warehouse. The Bill of Entry specifies that these goods are for sale only at Duty Free Shops or for export.

Additionally, DFOs rent private bonded warehouses near airports and operate Duty Free Shops at the arrival and departure terminals of international airports in India. Goods sold at these shops are available to international passengers without the payment of duties and taxes. DFOs receive a special warehouse license under Section 58-A, allowing them to operate these facilities and shops.

All over the world, except in India, goods can be supplied without payment of taxes. The petitioner, a manufacturer and exporter of garments in India, intends to supply goods to Duty Free Operators (DFO), who sell these goods from Duty Free Shops (DFSs). Duty Free Operators in India import items like liquor, tobacco products, souvenirs, eyewear, watches, fashion items, chocolates, and perfumes by filing an import general manifest and a Bill of Entry for warehousing with the customs department. These imports are duty-free on the first importation, subject to certain conditions. The Bill of Entry identifies the Duty Free Operator as the “importer,” and the imported goods are stored in a bonded warehouse, designated for “sale only for Duty Free Shop / Export”.

Duty Free Operators rent private bonded warehouses near airports and operate shops called Duty Free Shops at the arrival and departure terminals of international airports in India. They sell goods to international passengers without charging duties and taxes. These operators hold a special warehouse license under Section 58-A of the Customs Act, 1962, which allows them to store specific classes of goods. These warehouses are locked by customs officers, and no entry or removal of goods is allowed without their permission.

Duty Free Operators transfer goods from the customs warehouse to the private bonded warehouse or special warehouse without paying duties by executing a warehousing bond under Section 59 of the Customs Act. The transfer is for a period prescribed under Section 61, with customs officer permission as required by Section 60. The warehoused goods are then transported to the Duty Free Shops at the airport terminals without duty, escorted by a bond officer. The overall supervision and control of this process lie with the customs officer.

The petitioner emphasizes that the movement of goods from the special warehouse to the Duty Free Shops for sale is in strict compliance with the warehousing provisions of Chapter IX of the Customs Act, under customs supervision and control. According to Section 71 of the Act, goods deposited in these warehouses can be cleared for home consumption under Section 68 or for export under Section 69.

The petitioner, a manufacturer and exporter of garments in India, intends to supply goods to Duty Free Operators (DFOs) who sell these goods from Duty Free Shops (DFSs). The petitioner contends that Duty Free Operators in India import various goods such as liquor, tobacco products, souvenirs, eyewear, watches, fashion items, chocolates, and perfumes by filing an import general manifest and Bill of Entry for warehousing with the customs department, without paying import duty on the first importation, subject to certain conditions. The Bill of Entry identifies the Duty Free Operator as an importer, and the imported goods are stored in a bonded warehouse (customs warehouse) for sale exclusively at Duty Free Shops or for export.

Duty Free Operators rent private bonded warehouses near airports and operate shops at the arrival and departure terminals of international airports in India, selling goods to international passengers without the payment of duties and taxes. They are granted special warehouse licenses under Section 58-A of the Customs Act, 1962, for depositing certain classes of goods. These warehouses are locked by customs officers, and no entry or removal of goods is permitted without their permission.

When required, Duty Free Operators transfer goods from customs warehouses to private bonded warehouses or special warehouses without paying duty, by executing a warehousing bond under Section 59 of the Act for a period prescribed under Section 61, and with permission from customs officers as per Section 60. The goods are then brought to the Duty Free Shops under the supervision and control of customs officers. The movement of goods from special warehouses to Duty Free Shops strictly adheres to warehousing provisions under Chapter IX of the Act, under the supervision and control of customs officers.

According to Section 71 of the Act, goods deposited in the warehouse can either be cleared for home consumption (under Section 68), for export (under Section 69), for removal to another warehouse, or otherwise as provided under the Act. The petitioner contends that goods sold to international passengers at departure terminal Duty Free Shops are cleared for export under Section 69. Duty-free purchases at international airports in India are typically made in approved currencies, including foreign currency, which brings valuable foreign currency reserves into the country and contributes to significant growth in such sales.

Before the implementation of GST legislation, duty-free operations in India were exempt from paying Customs Duty, Countervailing Duty (CVD), Special Additional Customs Duty (SACD), Excise Duty, VAT/Sales Tax, and OCTROI. The petitioner argues that the principle for exemption from VAT/Sales Tax by an Indian Duty Free Shop was established by the Supreme Court in the case of M/s. Hotel Ashoka (Indian Tourism Development Corporation Limited) Vs. Assistant Commissioner of Commercial Taxes and Another (Civil Appeal No.2560/2010, decided on 03/02/2012).

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