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THE INSIGHT

Interplay between CA, 1962 and the GST Laws r/w Maritime Zones Act, 1976
By Hans Raj Garg
Jun 18, 2021

IT is important to know territorial jurisdiction of an enactment before its implementation.

Article 245 of the Constitution of India gives power to the Parliament to make laws for the whole or any part of the territory of India. Clause (2) of Article 245 of the Constitution of India states that "No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation."

The Customs Act, 1962

The Customs Act, 1962 extends to the whole of India and further except as otherwise provided in this Act, it applies also to any offence or contravention thereunder committed outside India by any person (Section 1). As per Section 2(27), 'India' includes the territorial waters of India. Section 2(28) defines 'Indian customs waters' as under (after the definition was amended by the Finance Act, 2018, effective from 29.03.2018):

"Indian customs waters" means the waters extending into the sea up to the limit of Exclusive Economic Zone under section 7 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976.and includes any bay, gulf, harbour, creek or tidal river;"

We find that in the Customs Act, 1962 references have been made to 'territorial waters' & 'exclusive economic zone' for which we have to refer to the provisions of Sections 3 and 7, respectively, of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (popularly known by its shorter version 'the Maritime Zones Act, 1976'):

"3. Sovereignty over, and limits of, territorial waters.-

(1) 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 subsoil underlying, and the air space over, such waters.

(2) 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."

"7. Exclusive economic zone.-(1) The exclusive economic zone of India (hereinafter referred to as the exclusive economic zone) is an area beyond and adjacent to the territorial waters, and the limit of such zone is two hundred nautical miles from the baseline referred to in sub-section (2) of section 3"

The expression 'Indian customs waters' presently finds mention in Sections 11H, 100, 106, 111 & 115 of the Customs Act, 1962. This expression was also found in Section 104(1) before 01.08.2019 when the Finance Act, 2019 omitted the words 'in India or within the Indian customs waters' occurring therein.

The amendment (effective from 29.03.2018) carried out in the definition of the expression 'Indian customs waters' [Section 2(28) of the Customs Act, 1962] has its own significance inasmuch as territorial jurisdiction for exercising the power under Sections 100 & 106 of the Customs Act, 1962 for search of any person or vessel and consequently order for confiscation under Section 111 or 115 stands extended from 24 nautical miles (contiguous zone) to 200 nautical miles (exclusive economic zone) measured from the appropriate coastal baseline. Needless to mention, the said confiscation of the goods and the vessel would arise only when there is seizure of the goods and the vessel, for which the proper officer should have reason to believe that the goods and the vessel were liable to confiscation under the Customs Act, 1962.

Further a s already noted, "India", under Section 2(27) of the Customs Act, 1962 includes territorial waters of India, which is 12 nautical miles measured from the appropriate coastal base line. It, therefore, follows that legally the import customs duty liability on the imported goods arises only when the vessel carrying such goods enters the territorial waters of India and the export customs duty liability on the export goods arises only when the vessel carrying such goods leaves the territorial waters of India. As a corollary, a person cannot be charged for evasion of customs duty till the goods become liable to customs duty i.e. when there is import into or export from India. In terms of Section 2(23) of the Customs Act, 1962, 'import' means bringing into India from a place outside India while 'export' under Section 2(18) means taking out of India to a place outside India. In terms of Section 12, duties of customs are levied at such rates as are specified under the Customs Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or exported from, India. 

An exception to the above was created vide Notification No S.O. 189(E) dated 11.02.2002 issued under sub-section (5) of Section 6 and sub-section (6) of Section 7 of the Maritime Zones Act, 1976 vide which the Customs Act, 1962 and the Customs Tariff Act, 1975 were extended to the continental shelf (CS) of India and the Exclusive Economic Zone (EEZ) of India for the purposes namely (a) the prospecting for extraction or production of mineral oils in the continent shelf of India or the exclusive economic zone of India and (b) the supply of any goods as defined in clause (22) of Section 2 of the Customs Act, 1962 in connection with any of the activities referred to in clause (a).

Therefore, any goods imported in the EEZ (beyond the territorial waters of India) for the above stated purposes will be liable to import customs duty e.g. when a rig is brought from outside India for use & operation within the EEZ, the rig would meet the requirement and satisfy the condition that these are imported goods meant for home consumption and will be liable to customs duty. Similarly, any goods taken from the mainland to the EEZ (beyond the territorial waters of India) for the above stated purposes will not be considered as export of goods. Similarly mineral oil extracted or produced in the EEZ or continental shelf and brought to the main land, is not treated as import and, therefore, no customs duty is leviable. Likewise, goods supplied to a place in the EEZ or continental shelf are not treated as export under the Customs Act and no export benefit is allowed on such supply.

The above exception is obviously not applicable to the research vessels operating within the EEZ but outside the territorial waters of India inasmuch as these are not used for the purpose stated in the aforesaid notification i.e. exploration or extraction of mineral oil .

The above provisions relating to the extent of India, however, do not restrict the scope for invocation of Section 104 of the Customs Act, 1962 relating to arrest of a person for offences committed beyond the territorial waters of India because of its amendment (effective 01.08.2019) read with the amendment (effective 29.03.2018) of Section 1(2) of the Customs Act, 1962 enlarging its reach. Therefore, for certain offences, committed outside the territorial waters of India, which are punishable under Sections 132, 133, 135, 135A & 136 of the Customs Act, 1962, a person can be arrested under the amended provisions of Section 104 read with the amended provisions of Section 1(2) of the Customs Act, 1962.

The GST Laws

The CGST, Act 2017 also extends to the whole of India and "India" extends up to EEZ as defined in Section 2(56) as under:

"India" means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters;" 

The above definition is also applicable to the IGST Act, 2017 by virtue of Section 2(24) thereof. Earlier, the provisions of the Finance Act, 1994 relating to Service Tax were extended to the EEZ using the powers under the Maritime Zones Act, 1976.

Thus under the GST laws, India has been defined widely, and provisions of GST laws are applicable in the CS and in the EEZ in addition to the territorial waters. These areas are deemed to be part of India itself, and if any person is situated in any of these places, location of the supplier shall be taken in India. Further, if any goods are supplied to any place in these areas, the place of supply shall be taken to be in India and it shall not amount to export of goods.

Ergo, the basic difference between the provisions of the Customs Act vis-à-vis the GST Laws is that while India has sovereign rights over its territorial waters (which is treated as part of its landmass), a deemed fiction has been created to include the area beyond the territorial waters up to the CS & the EEZ for the purpose of taxation under the GST Laws.

By virtue of the above definition of 'India' in the GST laws, petroleum crude produced in the EEZ or the CS and brought to the mainland is chargeable to GST [presently charged to Central Excise Duty & VAT due to exclusion of petroleum crude from GST vide Section 9(2) of the CGST Act, 2017], in the same manner as such goods produced in India are charged.

An export within the meaning of Section 2(5) of the IGST Act can be said to have taken place only when the goods are taken out of India, i.e. taken out of the EEZ and an import within the meaning of Section 2(10), ibid, can be said to have taken place when the goods are brought into India i.e. brought in the EEZ. If a vessel carrying export goods gets caught in Tauktae cyclone and loses cargo in the storm after crossing the territorial waters of India (12 nautical miles), the goods will be considered as exported goods as per the Customs Act, 1962 but not as per the GST law. Whether IGST on the goods needs to be recovered if the goods were exported under Bond or Letter of Undertaking?

The said provisions of the GST law regarding 'export' and 'import' appear to be out of sync with the provisions of the Customs Act, 1962 in this regard which provide that 'India' includes the territorial waters of India and not beyond. May be there is a need for alignment.

In view of the above provisions, supply of scrap by the taxpayers from the EEZ to the mainland is charged to IGST. Simultaneously, when such scrap enters the territorial waters, it is considered as import by Customs and duties, including IGST, are charged accordingly. So, IGST gets paid twice on the same goods which cannot be the intention of the legislature. Further, same goods cannot be local supply as well as import of goods into India.

Under the GST laws, territorial waters are treated as part of the adjacent State or the Union territory. As per Section 9 of the IGST Act, 2017, where the location of the supplier is in the territorial waters, the location of such supplier; or where the place of supply is in the territorial waters, the place of supply, shall, for the purposes of this Act, be deemed to be in the coastal State or Union territory in which the nearest point of the appropriate baseline is located.

Further, where the location of the supplier is outside the territorial waters but within the EEZ, the location of such supplier; or where the place of supply is outside the territorial waters but within the EEZ, the place of supply, shall, for the purposes of GST, be deemed to be in 'other territory' which is considered as a separate Union territory as per Section 2(8) of the UTGST Act, 2017. [Sections 2(81), 2(103) & 2(114) of the CGST Act, 2017 also define these concepts]

Analysis of the Statement of Objects and Reasons for Section 2(8) of the UTGST Act, 2017 reveals that (a) 'State' under the GST law is defined under the CGST Act to include a Union Territory (UT) with Legislature and so Delhi, Jammu & Kashmir and Puducherry, being UTs with Legislature, will be regarded as 'States' for GST, and will be governed by their respective SGST laws, instead of the UTGST law; (b) By definition, the expression 'other territory' is inclusive of all territories that do not form part of any State (including the UTs of Delhi, Jammu & Kashmir and Puducherry), and excludes the five specified UTs without Legislature listed under clauses (i) to (v) of the definition; and (c) All territories that fall into the ambit of 'other territory' would also form part of the meaning of the term 'Union territory'. The purpose of this inclusion is to ensure that any Indian territory that remains unclaimed by any of the States and the five specified Union Territories can be brought into the scope of GST.

Any supply from the 'other territory' to any State or to any of the five specified Union territories shall be considered as inter-state supply and will be charged to GST accordingly e.g. scrapped worn out goods cleared by an entity on replacement & renewal of the existing installation from the offshore oil exploration platform to the mainland shall be chargeable to IGST as supply within India and cannot be treated as an import into India.

Jurisdiction of the CS & the EEZ contiguous to the eastern coast of India has been given to Chennai North GST & Central Excise Commissionerate and of those contiguous to the western coast of India has been given to Mumbai South GST & Central Excise Commissionerate vide Sr Nos 22 and 69, respectively, of Table II to Notification No 02/2017 - Central Tax dated 19.06.2017 which came into force with effect from 22.06.2017. The tax payers have to register accordingly e.g. tax payers located within the 188 Nautical Miles of the EEZ & CS i.e. beyond the territorial waters contiguous to the western coast of India have to register with Mumbai South GST & Central Excise Commissionerate and such tax payers are registered with GSTIN starting with the digits 97 which is the code for 'other territory'. At present 65 tax payers are registered in this manner.

[The author retired as Additional Director, DRI, Mumbai Zonal Unit and the views expressed are strictly personal.]