By TIOL News Service

MUMBAI, OCT 18, 2017: THESE are Revenue appeals.

The Respondent operates duty free shops in the departure and arrival modules at various International Airports. These duty free shops are beyond Customs Barriers and are Bonded Warehouses.

Refund claims were filed by the Respondent claiming the benefit of Notification No. 41/2012-ST dated 29.06.2012 seeking refund of Service Tax paid on the rent paid by them to the Airport Authorities for running their duty free shops situated in the departure lounge of various airports.

The Assistant Commissioner sanctioned the refund.

All the Orders-in-Original were examined u/s 84 of the FA,1994 and separate appeals were filed by the Revenue before the Commissioner (Appeals).

The groundstaken in appeal were -

-  The Refund sanctioning authority has erred in interpreting the Standing Order No. 03/2008 dated 3.3.2008 issued under F.No. Air Cus/67-01/2008 by the Commissioner of Custom, Mumbai, in as much as the said Standing Order pertains to instructions on sale of non-duty paid goods by Duty Free Shops (DFS) to only international passengers. The Refund sanctioning authority erred in interpreting the same to mean that such sale will tantamount to export.

-  The Refund sanctioning authority has, failed to appreciate the definition of "export" as given under Section 2(18) of the Customs Act, 1962 wherein "Export" is defined as below: 'export with its grammatical variations and cognate expressions means taking out of India to a place outside India."

-  The Refund sanctioning authority erred in interpreting the same as sale by Duty Free Shop to International passengers in the departure lounge. Export under the Customs Act, 1962 means physical export of the goods out of the country. The Refund sanctioning authority did not appreciate the fact that such sale of goods took place in Indian Territory and only then the goods were physically taken out of India and that too by individual international passengers. By no stretch of imagination can it be construed that the Duty Free Shop has exported the goods inasmuch as the title of the goods is transferred to the passenger in the event of sale of goods by Duty Free Shop along with the consequent responsibilities pertaining to any tax or duty.

-  The Refund sanctioning authority also did not appreciate that the goods sold to international passengers in the departure lounge of airports have not been imported inasmuch as the goods have not crossed Customs boundary. [Hotel Ashoka v. Assistant Commr. of Commercial Taxes 2012-TIOL-08-SC-VAT relied upon]

-  Hence, the Refund Sanctioning Authority erred in not appreciating the fact that the goods sold to international passengers in the departure lounge had never crossed the customs frontier of India and hence the sale of the same cannot be termed as taking out of India to a place outside India … Thus, the refund sanctioning authority failed to appreciate that the goods which have not completed the act of importation cannot be exported.

-  Assuming but not accepting the fact that the transactions did happen in the Indian Territory, the Refund sanctioning authority has not appreciated the fact that the Duty Free Shop has sold the non-duty paid goods, which has been warehoused and has not been imported into India, to international passengers while still in the Indian territory. By no stretch of imagination, the same can be considered as physical export of goods. It is only the individual passengers who would take the goods outside India and not the Duty Free Shop.

-  Export is defined under Section 2(18) of the Customs Act, 1962, wherein export means taking out of India to a place outside India. In this case, the goods in question are warehoused goods which have not crossed customs barrier either for import or for export (Section 68 and Section 69 of the Customs Act, 1962).

-  The Refund Sanctioning Authority has not appreciated the fact that the impugned goods are not manufactured in India. They are imported, warehoused and finally sold in departure lounge of airports. Hence, the sale of duty free goods in departure lounge does not satisfy the definition of exports.

-  Assuming for the sake of discussion but not accepting the fact that the goods sold to individual passenger in the international departure lounge corresponds to export, even then the Refund Sanctioning Authority has not appreciated the fact that the services claimed as input service by the claimant are in no way related with the goods which is claimed to be exported. …that the input service of renting of space at the departure module of International Airport in this case has no nexus with the claimed exported goods inasmuch as the space so rented by the Duty Free Shop does not have any co-relation with the individual passengers carrying the goods outside the territory of India.

-  The Refund Sanctioning Authority has not appreciated the fact that at the point of sale of non-duty paid goods to the individual international passenger, the Duty Free Shop has recovered all the duty/tax it has incurred in the course of sale of the goods. Thus, in the instant case, there also arises a question of unjust enrichment …in as much as the price of sold goods also include the expenditure incurred in owning and maintaining the duty free shops. Hence, the respondent has by issuance of invoice for sale of goods has also recovered the expenditure incurred in owning and maintaining the duty free shop. Hence, the refund is also barred by unjust enrichment.

The lower appellate authority while rejecting the Revenue appeals inter alia observed –

-  As per Section 71 of the Customs Act, since the goods were not cleared for home consumption, the goods that were sold at the duty free shop could be regarded as 'exports' as no Customs duty was levied on the same when cleared out of warehouse;

-  The respondent would be considered as an exporter and, the goods sold at the departure duty free shops to be export goods, within the meaning assigned in section 2(18) to (20) of the Customs Act;

-  The goods were brought from foreign countries into India and warehoused as imported goods in terms of Chapter IX of the Customs Act, hence the same shall have to be treated as imported goods under Customs Act;

-  The renting of airport premises at the departure module has direct nexus with the export sale being made by the respondent as it is not possible to carry on the export sales at the Duty Free Shop at the departure terminals, without taking the duty free shops on rent from the Airport Authority of India;

-  There is no application of doctrine of unjust enrichment in case of export of goods.

And, therefore, the Revenue is before the CESTAT.

The Bench observed that the department has heavily relied on Article 286 of the Constitution of India and the judgment in Hotel Ashoka v. Asstt. Commissioner of Commercial Taxes , 2012-TIOL-08-SC-VAT, which was also rendered in the case of similar "duty free shops" and on the basis of the said judgment, the Duty Free Shop which is a Customs bonded warehouse is considered by the Department as a space outside India.

Adverting to article 286 of the Constitution of India, the CESTAT framed the following issues that arose for consideration -

(a) Whether the levy of Service Tax paid by the Respondent is authorised by law in view of provisions of Finance Act, 1994 read with Article 286 of the Constitution of India?

(b) Whether the sales of goods at duty free shops to International passengers is 'exports' by the duty-free shops for the purpose of Notification No. 41/2012-ST dated 29.06.2012, in the context of section 2(18) of the Customs Act, 1962?

(c) Whether conditions of Notification No. 41/2012-ST dated 29.06.2012 for seeking rebate/refund were satisfied?

(d) Whether the bar of 'unjust enrichment is applicable?

(e) Whether the impugned Orders-in-Appeal are legal and proper?

The Bench in a lengthy order inter alia observed –

-In view of the constitutional embargo contained in Article 286(1) of the Constitution of India, sales in the duty-free shop at International Airport of Bengaluru was considered as not taxable under the Sales Tax/Vat Act, by the Hon'ble Court in Hotel Ashoka (supra).

-The position in the matter of Service Tax is not different. Clause (5) of the "Place of Provision of Services Rules, 2012" notified by Notification No. 28/2012-ST., dated 20-6-2012 w.e.f. 1 st July, 2012, leaves no doubt that the place of provision of services relating to immovable property in the instant case is the place where the immovable property, in this case, Customs Bonded warehouse (Duty-Free Shop) is located, which admittedly is beyond customs barriers in non-taxable territory.

-In the case of rent paid for the space of duty free shops, the place of provision of services is thus the place where duty free shop is located, which is admittedly beyond Customs Frontiers.

-Section 66B of the Finance Act, 1994, permits levy of Service Tax only on the Services provided or agreed to be provided in the taxable territory, in tune with Article 286 of the Constitution of India.

-The Service provided by way of rent of place where immovable property i.e. duty free shop is located, admittedly being beyond Customs Frontiers and not within taxable territory, Service Tax cannot be charged on such rentals.

-In the instant case, there is no dispute that the duty-free shops, whether in arrival or departure lounge, of the International Airports are beyond the customs frontiers. Thus, they are outside the taxable territory and thus is non-taxable territory. The Grounds taken in the Appeal also show that the department deems these duty free shops in foreign territory. Since, the rent is paid for the rental space in arrival or departure lounge area in non-taxable territory, the same, therefore, is not a taxable service.

-Therefore, no Service Tax is chargeable at the first instance on rent for rental of Customs Bonded Warehouse (Duty Free Shop), whether it be in the arrival lounge or in the departure lounge. The levy of Service Tax paid by the Respondent is,therefore, not authorised by law in view of provisions of Finance Act, 1994 read with Article 286 of the Constitution of India.

-However, the Service Tax has been collected on the rent so paid for the duty-free shops. This Service Tax collected is in the nature of tax collected without authority of law. The Respondent would therefore be entitled for seeking refund of such tax collected without authority of law for non-taxable services.

-However, the Respondent has sought refund of Service Tax paid only so far as the duty free shops at the departure lounge is concerned by claiming benefit of Notification No. 41/2012-ST dated 29.06.2012 for seeking rebate/refund. The lower authorities have found them eligible for such refund in the context of the said Notification. The issue was not examined in the context of refund of tax collected without authority of law.

-There is no dispute on the fact that it is not possible to carry on the export sales at the Duty Free Shop at the departure terminals, without having a space there, which can only be possible by taking the duty free shops on rent from Airport Authority of India. In view of the above, the renting of airport premises at the departure module has a direct nexus with the export sale being made by the Respondent.

-Thus, we do not find any error in the findings recorded for being satisfied with the compliance of conditions of the Notification No. 41/2012-ST dated 29.06.2012.

-We have already pointed out that the Service Tax is collected without authority of law. Such collection of tax on services which are not taxable services, entitles the Respondent for grant of refund.

-In any event, elaborate findings are recorded by the Commissioner (Appeals) even on the issue of inapplicability of the bar of unjust enrichment. The Commissioner (Appeal) has examined the export invoices issued to the international passengers, which is also countersigned by the Customs Officers. No duty or taxes are charged or recovered in the said export invoice. Hence, no incidence of tax or duty has been passed on to their buyer international passengers.

-We agree with the contention of the Respondent, appreciated by the Commissioner (Appeal) that the Duty Free shop exists solely for the purpose that the international passengers are able to buy the goods without payment of customs duty/state excise duty and other applicable taxes. The very essence of Duty Free Shop is to ensure that the buyer at the Duty Free Shop does not bear any duty or tax burden.

-The unjust enrichment provisions are not available to deny refund in a case like this relating to non-taxable territory for Tax Free Sales in Duty free Shops.

Concluding that the findings of the Commissioner(A) cannot be said to be illegal or improper, the Revenue appeals were dismissed.

In passing: The CESTAT also noted that even in the new GST regime there is no departure from this legal position. Inasmuch as –

14. Even in the Integrated Goods and Services Tax Act, 2017, as per Section 13(4) the place of supply of services remains the place where immovable property is located. Section 13(4) reads as under-

"13(4) The place of supply of services supplied directly in relation to an immovable property, including services supplied in this regard by experts and estate agents, supply of accommodation by a hotel, inn, guest house, club or campsite, by whatever name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including that of architects or interior decorators, shall be the place where the immovable property is located or intended to be located."

(See 2017-TIOL-3744-CESTAT-MUM)