State cannot tax goods sold at duty-free shops

Allowing an appeal in Hotel Ashoka (Indian Tourism Development Corporation Limited) v Assistant Commissioner of Commercial Taxes and another, the Supreme Court recently held that a sale or purchase of goods will be deemed to take place in the course of import of the goods into the territory of India if the sale or purchase transaction takes place before the goods have crossed India’s customs frontiers.

As a result, goods sold at duty-free shops at international airports cannot be taxed, under either central or state legislation, as the transaction takes place outside the tax jurisdiction of the country.

In May 2008, Hotel Ashoka, which sold goods to passengers through its duty-free shops at airports, was directed by the tax authorities in Karnataka to pay ₹42 million (US$825,000) as sales tax. Hotel Ashoka had unsuccessfully argued that no tax was payable as the goods were sold directly to passengers and delivered to duty-free shops without having crossed the customs frontiers of India.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.