Accounting and bookkeeping services in Hyderabad > Blog > Tax Preparations > GST exemptions on duty free shops: What businesses need to know

Duty-Free Shops are glamorous retail stores that are at the departure area of international airports selling goods produced locally and do not attract duties and levies. These outlets are a big hit with international passengers as the products are available at a cheaper price and great offers; especially items like bags, watches, perfumes, confectionery, alcohol, and a lot more.

The Supreme court verdict under Article 286 of the Indian Constitution also states that duty-free shops lie beyond the customs frontier of India and hence are exempt from duty. A passenger departing from India buys products and uses or consumes them outside India, hence, as per the IGST Act, this transaction qualifies for export and is a zero-rated supply of goods, hence no GST. An outgoing passenger is not an ordinarily resident entering India for not more than six months for legitimate non-immigrant purposes. Since these Duty-Free Shops generate a lot of revenue, there is a lot of confusion and debate on how GST is applicable to these outlets as there are different provisions applicable to them.

Some points that businesses need to keep in mind while operating a Duty-free store are:

1. Taxability of goods:

Duty-free storage areas or warehouses are usually located within the Indian borders and thus attract taxes, however, the duty-free store can file a Bill of Entry and obtain a Space-certificate, once a Bill of Entry is filed it does not attract any liability as the goods are simply stored in the warehouse. GST and customs duty will be applicable only on the removal of goods from the designated area. Hence, if an international passenger arriving in India has to be charged with GST on the purchase of goods as the goods will be consumed within India. But a departing passenger would not be charged with GST as he would be consuming the goods outside India.

2. Taxability of services and Input Tax Credit (ITC):

The duty-free stores sell products and avail services of maintenance, professional services, legal fees, custom house agent services. As these service providers charge GST for their services, a lot of Input Tax credit (ITC) is available with the duty-free stores but they are unable to set it off against the sale/ supplies made to departing passengers and hence need to reverse their Input tax Credit as per Rule 42 and 43. However, from July 2019 the sale counters beyond immigration can claim a refund on GST paid on indigenous goods.


3. Inverted tax- structure:

When GST paid on purchases made by the duty-free stores exceeds the GST charged for an outward sale, it results in an inverted tax structure. That is to say that the duty-free stores buy their goods from local suppliers and thus pay GST, however, while making a sale they do not charge any taxes. This results in un-utilized tax credit and hence, such GST paid locally needs to be refunded notification No. 31/2019 issued by CBIC.

4. Refund of ITC Credit:

The accumulated and unutilized tax credits at the hands of registered taxpayers can be claimed as a refund provided. They fulfill all the conditions and as per the procedure of claim refunds on the GST portal by generating Form GST RFD- 10B.

Tax Calculation

5. Method of filing returns and claiming refunds:

  • All information and details of goods purchased and sold to eligible passengers must be maintained in electronic form. The data has to be maintained and updated regularly and made available in case of inspection by any officials.
  • On making a sale to departing passengers all documents including passport, boarding pass, passenger declaration, and sale invoice should be obtained and records of the same have to be maintained.
  • GST returns have to be filled regularly as per the provisions of the GST Act.
  • Claim refund by filing Form GST RFD- 10B by providing all the necessary documents, related information, filling in all the necessary undertakings, and signing it by an authorized signatory.
  • In case of any deficiencies, the same has to be replied to suitably within 15 days in order to expedite the refund process.

There are a lot of issues and challenges faced by the duty-free stores that need clarification as GST on duty-free goods operates in a different manner. The applicability of GST on duty-free shops stills remains a big question with various different rulings and if these shops come under the ambit of GST, then the prices of goods and services will increase which would ruin the very existence of the idea of buying cheaper goods from duty-free shops and also reduce the foreign exchange earnings for India.

Over to you

It is not easy for duty-free stores to carry on their business keeping in mind so many provisions and to make it less cumbersome. It is advisable to outsource their tax function. Diligen has a dedicated team of tax experts and consultants who can be of great help to solve any GST-related issues. The clients with Diligen can work at ease knowing that their GST-related issues are being taken care of by the best in the industry.

Diligen has special taxation and compliance management team that ensures that all GST-related documents, information, and forms are filled and all necessary procedures are completed before the due dates. Diligen understands how duty-free stores operate and provide end-end operational and finance functions related support to our clients. We are equipped with a professional team who help clients to develop an effective compliance structure in their organization especially in matters of GST. The Team provides continuous assistance and helps clients file their monthly, quarterly and annual GST returns in a manner that ensures that the client benefits the most while complying with all necessary rules and regulations. Diligen also helps clients in registration and liaising with various tax officials as we have an in-depth understanding of all the regulatory settings. Diligen’s team of GST experts is always updated with all the latest tax reforms and provides quality services to our clients who can concentrate on their business while we take care of their taxes. 

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