Tax relief for goods at duty free shops

Goods sold at a duty free shop at international airports cannot be taxed by the government as the sale does not take place within the tax jurisdiction of the country, the Supreme Court has held.

A bench of Justices D K Jain and Anil R Dave passed the ruling while dismissing a plea of the Karnataka government, which wanted to levy tax on duty free shops run by India Tourism Development Corporation’s Hotel Ashoka at Bangalore International Airport.

“It is very clear that no tax on the sale or purchase of goods can be imposed by any state when the transaction of sale or purchase takes place in the course of import or export of goods out of the territory of India. Thus, if any transaction of sale or purchase takes place when the goods are being imported in India or are being exported from India, no state can impose any tax thereon,” the court said.

The Hotel Ashoka challenged the Karnataka High Court’s decision which had refused to intervene into the assessment order passed by the assistant commissioner of commercial taxes, Bangalore, on May 28, 2008, directing it to pay Rs 4.20 crore as sales tax.

The apex court allowed the plea of the hotel which referred to Article 286 of the Constitution and Section 5 of the Central Sales Tax Act, 1956, under which it contended, the Karnataka government had no right to tax any transaction which took place at the duty free shops not falling within the customs’ frontiers of the country.