GST on Minimum Guarantee/Revenue Share for Duty-Free Shops at Airports: Revenue Neutrality Principle Applied

Issue:

Whether GST is leviable on minimum guarantee/revenue share paid by a Duty-Free Shop (DFS) operator to the Airport Authority of India (AAI) for the operation of DFS at an international airport, particularly considering that the supplies from DFS are zero-rated, and whether the principle of revenue neutrality can justify not pursuing an appeal or demanding taxes when the ultimate effect is a refund.

Facts:

The petitioner had a concession agreement with the Airport Authority of India (AAI) to operate a Duty-Free Shop (DFS) at Chennai International Airport. The petitioner paid a minimum guarantee/revenue share to the AAI. The petitioner challenged the levy of CGST/SGST on this payment, arguing that supplies from DFS are zero-rated. The High Court initially granted an injunction restraining AAI from collecting GST. However, during the hearing, the petitioner agreed to pay GST from April 2021 onwards and claim a refund. For the period January 1, 2018, to June 30, 2019, AAI had already paid taxes without passing the burden to the petitioner, and requested a refund for these taxes. For the period July 2019 to March 30, 2021, taxes were not collected due to the interim stay order. The petitioner argued that even if tax was levied for this period, it would be followed by a refund under Section 54 of the CGST/SGST Act read with Section 16 of the IGST Act, making the entire exercise revenue neutral. The Revenue agreed that the supplies were zero-rated. The Single Judge had directed a refund on the ground of revenue neutrality for the period prior to April 1, 2021. The Revenue challenged this finding, arguing that revenue neutrality cannot be a reason to act contrary to provisions mandating payment of taxes followed by a claim for refund.

Decision:

The court found that the Single Judge’s finding regarding revenue neutrality, especially for the period prior to April 1, 2021, was not seriously disputed by the Revenue/Union. The court reiterated that the Apex Court has, on more than one occasion, held that no appeal need be preferred where the tax effect is revenue neutral. However, the authorities were granted liberty to examine whether the tax effect was in fact revenue neutral and if there was any loss of revenue. If the authorities find the exercise not to be revenue neutral, they are at liberty to proceed in accordance with law. The Single Judge’s direction that the petitioner had to pay GST on the concession fee from March 1, 2021, and thereafter claim a refund under Section 54 of the CGST Act was not challenged by the petitioner and remained undisturbed. The court directed that the refund application filed by the Airport Authority should be processed.

Key Takeaways:

Zero-Rated Supplies and DFS: This case reaffirms that supplies made by Duty-Free Shops at international airports are considered zero-rated supplies under GST.
Revenue Neutrality Principle: The principle of “revenue neutrality” is a significant factor in tax litigation. Where the payment of tax by one party would ultimately lead to a refund to another party (or the same party in a different capacity), thus having no net impact on government revenue, higher courts may discourage or dismiss appeals.
Burden of Proof for Revenue Neutrality: While the court acknowledged the revenue neutrality argument, it also granted the authorities the liberty to verify if there was indeed no loss of revenue, indicating that the burden to prove revenue neutrality might lie with the assessee or that authorities can still conduct an independent verification.
Procedural Compliance vs. Substantive Outcome: The Revenue’s argument focused on the procedural mandate of paying tax first and then claiming a refund, even if the eventual outcome is revenue neutral. However, the court leaned towards the substantive outcome of no revenue loss.
Importance of Judicial Precedent: The court’s reliance on Apex Court rulings regarding revenue neutrality highlights the importance of such precedents in settling tax disputes.

HIGH COURT OF MADRAS

Union of India

Flemingo Duty Free Shop (P.) Ltd.

Mohammed Shaffiq, J.
and K.R. SHRIRAM, CJ.

W.A. No. 674 of 2023
C.M.P. No. 6753 of 2023

APRIL 29, 2025

CIT, Central v. J.K. Charitable Trust [2008] (para 2.5), CIT v. Citi Bank [2024] 469 ITR 410 (para 2.9) and CCE & Customs, Vadodara v. Narmada Chematur Pharmaceuticals Ltd. (179) ELT 276 (SC) (para 2.9).

A.P. Srinivas, Sr. Standing Counsel for the Appellant. V. Sridharan, Dr. Fr. A. Xavier Arul Raj, Sr. Counsels, S. Muthu Venkataraman, A.Arulmary and Ms. Amrita Dinakaran, Govt. Adv. for the Respondent.

JUDGMENT

Mohammed Shaffiq, J. – The present writ appeal is filed by Union of India challenging the order of the learned single judge insofar as the following directions viz.,

(a)

To refund the Goods and Service Tax paid for the period 01.01.2018 to 30.06.2018;

(b)

Not to collect GST for the period July 2019 to March 2021 on the premise that the collection would be followed by a refund and thus the entire exercise is revenue neutral.

2. In this judgment, parties are referred to in the same ranking as in the writ petition. Petitioner viz., Flemingo Duty Free Shop Private Limited, is a company incorporated under Companies Act, 1956. Petitioner is stated to be the first private entity in India to be engaged in the business of operation and management of Duty Free Shops (hereinafter referred to as “DFS”), which sell and/or deal in duty free goods at airports and seaports in India.

2.1. Respondent No.3 Airport authority of India is a Public Sector Enterprise and responsible for operation, management and maintenance of airports in India. Airports in Chennai is operated, managed and maintained by 3^rd respondent directly or through 4^th respondent, i.e., Airport Director, Chennai International Airport.

2.2. Petitioner entered into a concession agreement with 3^rd respondent for operation of DFS at Chennai International Airport. Petitioner was issued a Special Bonded Warehouse License under Section 58A of the Customs Act, 1962, by the Commissioner of Customs for storage of Duty Free Goods. Petitioner has been running DFS since 2016 and sells perfumes, alcohol, confectionery, cosmetics etc. These products are procured by petitioner from foreign suppliers for sale at DFS inside the airport. These are first kept in customs bonded warehouses and later transferred to DFS for sale. In terms of the concession agreement petitioner paid minimum guarantee/revenue share to respondent No.3 and 4, at both arrival and departure outlets.

2.3. Writ petitions were filed challenging the levy of CGST/SGST on the minimum guarantee/revenue share on DFS operated by petitioner in the arrival and departure terminals. The challenge was on the premise that they are beyond the customs frontiers of India and outside the territory of India and the supplies were Zero Rate in terms of Section 16 of Integrated Goods and Services Tax Act(hereinafter referred to as IGST Act). Respondent No.3 issued to petitioner an invoice inclusive of GST for the month of October 2017. Petitioner informed 3^rd and 4^th respondent that levy of GST was without authority of law. Nevertheless, petitioner paid taxes charged for the month of October 2017 under protest while reserving its right to claim refund of amount collected under CGST/SGST. Respondent No.3 continued to issue monthly invoices including CGST and SGST for the months of November and December 2017.

2.4. Aggrieved, petitioner preferred a writ petition before High Court of Judicature Madras, Madurai Bench in W.P.(MD)No.2129 of 2018. The Madurai Bench of this Court vide order dated 16.02.2018, granted an injunction restraining 3^rd and 4^th respondent from collecting Goods and Service Tax on supply of services to petitioner in relation to DFS arrival and departure outlets and finally disposed of the writ petition with the following direction :

“a) In as much as the petitioner would be entitled to refund of ITC on the GST paid by them, I am of the view that no purpose will be served by asking the petitioner to pay GST and thereafter claim refund. Therefore, for the period prior to 28.02.2021, the petitioner need not pay any GST to the fourth respondent.

(b)Since the fourth has paid GST for the period from 01.01.2018 to 31.03.2018, even though the petitioner has not paid, the first respondent has to refund to the fourth respondent.

(c) The petitioner has to pay GST on the concession fee to the fourth respondent and thereafter claim refund as per Section 54 of the CGST Act with effect from 01.03.2021.”

2.5. The writ petition W.P.No.4055 of 2018 filed on the premise that 3^rd and 4^th respondents are charging and insisting on payment of CGST/SGST on the minimum guarantee/revenue share by calling it “License fees for exclusive Concession to Develop, Operate and Maintain Duty Free Shops” at both the arrival and departure of Chennai International Airport. When the writ petition was heard by the learned judge the following period wise break up was noticed:

Period	Remark
July 2017 to December 2017	Petitioner compelled to pay tax and thereafter claim refund under Section 54 of the GST Act read with Section 16 of IGST Act. (Refund granted.)
01.01.2018 to 31.07.2019	Respondent No.3 and 4 proceeded to discharge GST liability of Rs.18.68 crores, though same was not collected from the petitioner.
July 2019 to till date	Stay granted by Madurai Bench of this Court and thus Respondent No.3 and 4 has neither collected GST nor remitted the same.

2.6. Importantly, the learned single judge records that the petitioner during the course of hearing had agreed to discharge the Goods and Service Tax from April 2021 and thereafter claim refund in terms of Section 16 of IGST Act read with Section 54 of the CGST/SGST Acts. With regard to the period 01.01.2018 to 31.06.2019 the 3^rd and 4^th respondent having paid taxes without even passing it on to petitioner inasmuch as above supply would constitute zero rate sale, request was made that taxes so remitted may be refunded to 3^rd and 4^th respondent. While for the period July 2019 till 30.03.2021 when the taxes were not collected in view of operation of interim order of stay, it was submitted that levy of tax would in any case be followed by refund in terms of Section 54 of CGST/SGST Act read with Section 16 of IGST Act, thus the entire exercise is revenue neutral.

2.7. Though grounds were raised challenging the treatment of impugned supplies as zero rate supplies, to a pointed question as to whether the revenue would persist contesting the supplies being zero rate, the learned counsel for revenue would concede that the supplies in question are in fact zero rate. In view thereof, we do not find/deem it necessary to examine the above question.

2.8. The order of the Learned Judge directing refund on the ground that exercise of payment of taxes followed by refund is a revenue neutral exercise, is however challenged. The challenge is on the limited premise that revenue neutrality cannot be a reason to act contrary to the provisions which mandates payment of taxes followed by claim for refund, even where the supply is Zero Rate in terms of Section 16 of IGST Act.

2.9. Having said that the finding of the Learned Judge, particularly for the period prior to 01.04.2021, that the entire exercise is Revenue neutral is not seriously disputed by the revenue/Union, we see no reason to interfere with the order of the Learned Judge. The Apex Court on more than one occasion held that no appeal need be preferred where the tax effect is revenue neutral. The following decisions are relevant:

(i)

Commissioner of Income-tax, Central v. J.K. Charitable Trust

“14. Similarly, where the effect of the decision is revenue neutral there may not be any need for preferring the appeal. All these certainly provide the foundation for making a departure.”

The above was reiterated by Supreme Court in the case of Commissioner of Income Tax v. Citi Bank [2024] 469 ITR 410

(ii)

Commissioner of Central Excise & Customs, Vadodara v. Narmada Chematur Pharmaceuticals Ltd.

“1. It is stated by the learned counsel appearing on behalf of the assessee that the excie duty paid and MODVAT credit availed of were identical. There fore the consequences of payment of excise duty after availing of MODVAT credit was revenue neutral. The appeals are accordingly dismissed.”

2.10. We may, however, clarify the authorities are at liberty to examine as to whether the tax effect is in fact revenue neutral for the period prior 01.04.2021 or there is any loss of revenue. If authorities find the exercise to be not revenue neutral, it is open to the authorities to proceed in accordance with law. We say no more in that regard.

2.11. We also make it clear that the direction of the learned judge that the petitioner has to pay GST on the concession fee to the fourth respondent and thereafter claim refund as per Section 54 of the CGST Act with effect from 01.03.2021 is not challenged by petitioner and remains undisturbed.

2.12. Refund application stated to be filed by 3^rd respondent shall be processed and finalized within a period of four weeks along with applicable interest in accordance with law.

3. In view thereof, the writ appeal stands disposed of on the above terms. No costs. Consequently, connected miscellaneous petition is closed.