New Delhi (Agency): On Friday, the Supreme Court of India recalled a previous verdict, dated April 10, where it had ruled that duty free shops at international airports in India are outside the purview of customs law and cannot be burdened with indirect taxes such as service tax. The court’s recent decision opens the door for the government to impose these taxes.
The original decision held that duty free shops, situated in arrival and departure terminals, could not be “saddled with any indirect tax burden,” and if any tax were levied, the duty free shops would be entitled to a refund. The ruling was seen as groundbreaking at the time.
However, a special bench, comprising Chief Justice D Y Chandrachud and justices J B Pardiwala and Manoj Misra, has now accepted a review plea against the April 10 judgment. Additional Solicitor General N Venkatraman, who appeared for the Centre and the Commissioner of Central Goods and Services Tax (CGST) and Central Excise of Mumbai East, presented the case.
The bench agreed to the contention that there was a “breach of principle of natural justice” as the government department had not been given a chance to be heard. Consequently, the Supreme Court made it clear that no steps for claiming a refund of service tax amounting to Rs 200 crore from the government could be undertaken by M/s Flemingo Travel Retail Limited (FTRL) in the meantime.
FTRL is involved in operating duty free shops at the arrival and departure terminals of the Mumbai and Delhi International Airports. Previously, the Customs Excise and Service Tax Appellate Tribunal (CESTAT) in Mumbai had allowed FTRL’s appeal for a refund of service tax in relation to their transaction with Mumbai International Airport Limited for the period of October 01, 2011, to August 30, 2017.
The government department filed an appeal in the Supreme Court, but it was dismissed on April 10 by a bench of justices. The original judgment, however, relied on certain previous rulings and the tribunal’s order, and stated: “We are also of the opinion that Duty Free Shops, whether in the arrival or departure terminals, being outside the customs frontiers of India, cannot be saddled with any indirect tax burden and any such levy would be unconstitutional.”
This recent decision by the Supreme Court to recall the verdict means that the government’s appeal, along with 16 other similar pleas, will be heard together afresh.
Earlier, the CESTAT had asserted that duty free shops at international airports are part of a global market that competes among itself in a tax-exempt environment. They had concluded that the levy of service tax would be without lawful authority. Furthermore, it had ruled that such shops in international arrival or departure terminals should be considered as areas beyond the customs frontiers of India.
This recall by the Supreme Court brings a new twist to the matter, potentially impacting the way duty free shops at airports operate. The imposition of indirect taxes could change the pricing dynamics and influence consumer behavior at these shops.
