Export will be considered only when the goods are taken out to a place outside India.


Export will be considered only when the goods are taken out to a place outside India.

(M/s Vasu Clothing P. Ltd.)

Issue: Whether supply of goods and services made by an Indian supplier to the duty free shops in India is to be treated as exports on the ground that the duty free shops at international airports in India are located beyond the customs frontier of India?

  • In the above judgment, the petitioner is entitled to supply goods and services to Duty Free Shops without payment of taxes and similar supplies from all over the world except India are permitted without payment of taxes.
  • The petitioner has stated that petitioner is a manufacturer and exporter of garments in India and he intends to supply goods to Duty Free Operator (DFO), who in turn is selling the goods from Duty Free Shops (DFSs). It has been further contended that Duty Free Operator operating in India imports goods like liquor,tobacco products, souvenirs, eyewear, watches, fashion, chocolates, perfumes, etc. by filing import general manifest and Bill of Entry for warehousing with the customs department without payment of import duty on the first importation subject to certain conditions.
  • The bill of entry clearly indicates the Duty Free Operator as an “importer”. The imported goods are warehoused at a bonded warehouse (customs warehouse) and the bill of entry also discloses that the goods imported are for “sale only for Duty Free Shop /Export”.
  • It has been further stated that the Duty Free Operator also takes on rent a private bonded warehouse located near the airport as well as certain shops called “Duty Free Shops” at the arrival and departure terminals of international airports in India. The goods are sold to international passengers without payment of duties and taxes.
  • It has been further contended that the Duty Free Operator is granted special warehouse license under Section 58-A of the Customs Act, 1962 for depositing notified class of goods and such warehouse are kept locked by the proper officer and no entry of any person or removal of goods there from are allowed without the permission of the proper officer.
  • It has been further stated that Duty Free Operators transfers the goods from customs warehouse to the private bonded warehouse / special warehouse without payment of duty whenever required by executing a warehousing bond under Section 59 of the Act for a period as prescribed under Section 61 of the Act and under the permission of the Customs Officer as prescribed under Section 60 of the Act. The goods so warehoused are then brought to the Duty Free Shop without payment of duty under escort of the bond officer and then the goods are sold at the Duty Free Shops at the arrival and departure terminals. The overall all supervision and control is of the Customs Officer.
  • The petitioner has further stated that the entire movement of goods from special warehouse to Duty Free Shops for the purpose of sale at arrival and departure takes place strictly in consonance with the warehousing provisions under Chapter IX of the Act and under the custom supervision and control. It has been further stated that as per Section 71 of the Act, the goods so deposited can either be cleared from the warehouse for home consumption (under Section 68) or for export (under Section 69) or for removal to another warehouse or otherwise provided under the Act.

The Applicant also refers various Notifications and amendments to the authority.

Authority for the purpose of judgment has referred following definitions:

  • Sections 2(11), 2(18) and 2(27) of the Customs Act, 1962:- 2(11). “customs area” means the area of a customs station or a warehouse and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities;
  • 2(18). “export”, with its grammatical variations and cognate expressions, means taking out of India to a place outside India;
  • 2(27). “India” includes the territorial waters of India;
  • Section 3(1), (2) and (3) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976:-

The sovereignty of India extends and has always extended to the territorial waters of India (hereinafter referred to as the territorial waters) and to the seabed and sub-soil underlying, and the airspace over, such waters.

The limit of the territorial waters is the line every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate baseline.

Notwithstanding anything contained in sub-section (2), the Central Government may, whenever it considers necessary so to do having regard to International Law and State practice, alter, by notification in the Official Gazette, the limit of the territorial waters.”

After gone through various provisions, definitions, and amendments following conclusion were drawn/ Held:

  • No provision of law has been brought to the notice of this Court under the CGST Act, 2017, which grants exemption from payment of taxes. The statute governing the field does not provide any such exemption as prayed by the petitioner. The petitioner is supplying goods to Duty Free Shops and as per Section 2(5) of IGST Act, 2017 export of goods takes place only when goods are taken out to a place outside India.
  • Therefore, the goods can be said to be exported only when they cross territorial waters of India and the goods cannot be called to be exported merely on crossing customs frontier of India.
  • In light of the definition as contained under the IGST Act, 2017 a Duty Free Shop situated at the airport cannot be treated as territory out of India. As the supply to a DFS by an Indian supplier is not to ‘a place outside India’, therefore, such suppliers do not qualify as ‘export of goods’ under GST.