TaxTMI 
TaxTMI 
2001 (4) TMI 109
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....er related services as contractor, and works for and on behalf of Oil and Natural Gas Commission ("ONGC" for short). 3.The petitioner carries on operation with its oil rig Pride Pensylvania (hereinafter referred to as the "Rig") in the exclusive economic zone as defined under the Maritime Zones Act, 1976. The Oil Rig has a drilling machinery for drilling on the ocean floor. It is towed to the required locations outside the territorial waters of India and anchored and jacked up for drilling operations on the high seas. The drilling operations are carried on by the Oil Rig on the continental shelf. 4.The petitioner company imports goods including stores, spares, consumables and other articles required for the use on the Oil Rig. As the said imported goods/stores cannot land directly on the Oil Rig, the same land at Mumbai Seaport/Airport and the same are then transhipped to the Oil Rig. 5.The cause of action for filing this petition is the refusal by the respondents to permit the petitioner to tranship stores and equipments to the Oil Rig without payment of customs duty. The petitioner contends that the goods imported for Oil Rig are liable to be transhipped to the Oil Rig w....
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....ch are transferred to the Rig, while the rig is in designated area, continue to be entitled to the benefits of Sections 86(2) and 87 of the Customs Act, which provides that any stores imported in a vessel or aircraft may be transferred to any vessel or aircraft as stores for consumption therein as provided in Section 87. Section 87 inter alia provides that imported stores may, without payment of duty, be consumed thereon as stores during the period such vessel is a foreign going vessel. In his submission, even where operations are carried on in the designated area, the Rig continues to operate outside the territorial waters of India. The learned Counsel for the petitioner, in support of his above submissions, placed reliance on decision of this Court in Amership judgment case (supra) wherein this Court observed as under : ".... apart from vessels which are engaged in carrying goods or passengers, vessels engaged in fishing or any other operations outside the territorial waters of India are included in the definition of the words 'foreign going vessel'." 9.The learned Counsel, based on the above observations, contends that the Rigs are stationed beyond the Indian territorial w....
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....of Section 86(2) of the Customs Act. 13.The learned Counsel for the petitioner further contends that Section 53 of the Customs Act inter alia provides that any goods imported in a conveyance and mentioned in the import manifest or the import report, as the case may be, as for transit in the same conveyance to any place outside India may be allowed to be so transited without payment of duty. The Rig carries on operations outside the territorial waters of India. When the Rig is carrying on operations, it is jacked up on four legs on the sea bed. During the time when it carries on operations, supply vessels from the shore sail to the Rig and unload their cargo onto the Rig. Helicopters also land on the Rig. All these operations are carried out outside India. India is defined by Section 2(27) of the Customs Act, as including the territorial waters of India. The Rig, being outside the territorial waters of India, is a place outside India, within the meaning of Section 53 of the Customs Act and hence, the goods of the petitioner are entitled to be transited to the Rig without payment of duty under Section 53 of the Customs Act. He relied upon the judgment of Apex Court in Collector of....
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....99 (7) SC 522 and placed reliance on the observations of the Apex Court reading as : "..... the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country, the taxable event being reached at the time when the goods reach the customs barriers and the bills of entry for home consumption is filed." 16.In the alternative, the petitioner submits that Section 6 of Maritime Zones Act, 1976 defines the Continental Shelf of India. Section 7 defines the Exclusive Economic Zone of India means the areas specified therein beyond the territorial waters of India. The said sections inter alia empower the Central Government to declare any area within the Continental Shelf and the Exclusive Economic Zone to be designated area and make such provisions in respect thereof relating inter alia to custom matters. The notification issued by the Central Government under Section 5(6) of the Maritime Zones Act, 1976 does not, in any way, change the definition of the territorial waters. Consequently, even if a Rig operated within the said designated areas such a Rig continues t....
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....rms, the coordinators of which are given in the schedule below, are situated and the areas extending up to five hundred meters from the said installations, structures and platforms as designated areas for the purposes of said section." On the text of the submission, the contention is that the Oil Rigs are located in the designated areas only and that the Government, Ministry of Finance, Department of Revenue, New Delhi had published the Gazette of India, Extraordinary, dated 1st December, 1997 notifying that the extensions of the Customs Act, 1962 and the Customs Tariff Act, 1975 to the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notification of the Government of India in the Ministry of External Affairs No. SO 643(E), dated 19th September, 1996. He, therefore, submits that in terms of the said notification, the petitioner is legally liable to pay customs duty including what they call stores brought to and utilised on the Oil Rig. In other words, the submission is that the notification referred to clearly lays down in unambiguous and unmistakable terms that the provisions of the Customs Act and Customs Tariffs Act are applica....
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....of the Customs Act, 1962 will not automatically apply to that area." The2. effect of the aforesaid opinion of the Law Ministry is that if a drilling rig is brought from a foreign country to a place in the EEZ for exploration/exploitation of oil, it would not constitute import for the purpose of the Customs Act, 1962 and no duties can be levied for such cargo/equipments if such rigs operate in the zone outside the designated areas and beyond the territorial waters of India. It would also follow therefrom that if any oil is generated at such drilling sites (non-designated and beyond the territorial waters) and such oil is brought to the Indian shores while no excise duty will be leviable on the production of this oil, such oil would be liable to pay the customs duty as if it has been imported into India." He also pressed into service another Circular No. 28/95, F. No. 450/76/93-Cus. IV, dated 27th March, 1995 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise & Customs, New Delhi, which reads as under : "Sub. :- Declaration of ONGC installations in Bombay High as Designated Area - regarding. The undersigned is directed t....
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....that the designated areas become a deemed territory of India, a deemed territory, created by a legal fiction cannot rank at par with an actual territory of India and could never become an actual territory of India or part of India. In any view of the matter, the designated areas are outside the territorial waters of India and, hence, petitioner's Oil Rig continues to be a foreign going vessel because even when the Oil Rig is engaged in operations in the designated areas, it is engaged in operations outside the territorial waters of India. 23.The learned Counsel for the petitioner further contends that the Continental Shelf of India comprises the sea-bed beyond the territorial waters up to a distance of 200 nautical miles. Based on Sections 6 and 7 of the Maritime Zones Act, 1976, he submits that in respect of Continental Shelf and Exclusive Economic Zone, India has only certain limited sovereign rights and do not make the Continental Shelf and Exclusive Economic Zone a part of India and cannot be equated to extending the sovereignty of India over the Continental Shelf and Exclusive Economic Zone as in the case of territorial waters. He sought to place reliance on the ratio of th....
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....(iii) any vessel or aircraft proceeding to a place outside India for any purpose whatsoever. (iv) Section 2(28) of the Customs Act defines "Indian Customs Waters" means the waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Maritime Zones Act and includes any bay, gulf, harbour, creek, or tidal river. (v) Section 53. Transit of goods in same vessel or aircraft Subject to the provisions of Section 11, any goods imported in a vessel or aircraft and mentioned in the import manifest as for transit in the same vessel or aircraft to any port or airport outside India or any customs port or customs airport may be allowed to be so transited without payment of duty. (vi) Section 54. Transhipment of goods without payment duty. Where(1) any goods imported into a customs port or customs airport are intended for transhipment, a bill of transhipment shall be presented to the proper officer in the prescribed form. (vii) Section 86. Transit and transhipment o....
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....nd other maritime zones of India. It defines the territorial waters of India. The Maritime Zones Act, 1976 provides that the said Act is a sequel to the amendment to Article 297 and that it was in consonance with what has been accepted by the international community of States. (xi) Section 3(2) defines the limit of territorial waters as the line every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate base line. Section 3(3) authorises the Central Government to alter the limits of territorial waters. (xii) Section 6 of the Maritime Zones Act, 1976 defines the Continental Shelf of India and section 7 defines the Exclusive Economic Zone of India. Section 6(5) authorises the Central Government to declare any area on the Continental Shelf as "designated area". Similarly section 7(6) authorises the Central Government to declare any area in the Exclusive Economic zone as "designated area". The Central Government has further, by notifications to be issued under section 6(6) of the Maritime Zones Act, 1976 to extend any enactment for the time being in force in India to th....
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.... into seventeen parts and nine annexures. It lays down rules for all parts and virtually all users of seas and oceans. The relevant clauses thereof are as under :- Article 2. Legal status of the territorial sea, of the air space over the territorial sea and of its bed and subsoil. 1. The sovereignty of a coastal States extends, beyond its land territory and internal waters and, in the case of an archipelagic State, its archipelagic waters, to an adjacent belt of sea, described as the territorial sea. 2. This sovereignty extends to the air space over the territorial sea as well as to its bed as subsoil. 3. The sovereignty over the territorial sea is exercised subject to this convention and to other rules of International law. Article 3. Breadth of the territorial sea. Every State has the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles, measured from base lines determined in accordance with this Convention. Article 33. Contiguous zone. 1. In a zone contiguous to its territorial sea, described as the contiguous zone, the coastal State may exercise the control necessary to : (a) present infrin....
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.... charges except charges levied for specific services rendered in connection with such traffic. 2. Means of transport in transit and other facilities provided for and used by landlocked States shall not be subject to taxes or charges higher than those levied for the use of means of transport of the transit State.CONSIDERATION/FINDINGS 27.The Customs Act is an Act to consolidate and amend the law relating to Customs. Chapter V thereof deals with levy of and exemption from customs duty. Section 12 is the charging section. Under this section all the goods imported into India or exported from India are liable to customs duty unless the Customs Act itself or any other law for the time being in force provides otherwise. 28.In order to appreciate the contention raised in this petition, it is necessary to notice certain steps required to be taken under the Customs Act for levy of duty on goods imported into India. As stated above, Section 12 declares that the duty of customs shall be levied on all the goods imported into India. The goods imported are required to be valued under Section 14 and duty payable is required to be determined according to the rates specified under Sec....
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....er the Oil Rig operating in the designated area is a foreign going vessel? Thus entire issue centres around the interpretation of Section 2(21) of the Customs Act, which defines the "foreign going vessel" to mean any vessel engaged in the carriage of goods or passengers between any port in India and any port outside India. It amongst others also includes any vessel engaged in fishing or any other operations outside territorial waters of India, or, any vessel proceeding to a place outside India for any purpose whatsoever. It needs to be noted that the Section 2 opens with the qualifying words : "unless the context otherwise requires". In our view, where the definition itself says that a particular word shall mean or particular word shall include certain things and such a clause is preceded by expression "unless the context otherwise requires", it shall mean or include all those things or situations. It is not open to the Court to give any other meaning to those words except when the context requires otherwise. The expression "unless the context otherwise requires" excludes all situations except those for compelling reasons the intended definition has to be abandoned. Section 2 direc....
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....dia, and (b) immigration, sanitation, customs and other fiscal matters. 35.Under Section 6(1) of the said Act the continental shelf of India extends to a distance of 200 nautical miles from the baseline referred to in sub-section (2) of Section 3 where the outer edge of the continental margin does not extend up to that distance. Section 6(2) describes the sovereign rights of India, in respect of its continental shelf. Section 6(6) enables the Central Government by notification in the Official Gazette to extend, with such restriction and modifications as it thinks fit, any enactment for the time being in force in India or any part thereof to the continental shelf or any part thereof. 36.Section 7(1) describes the exclusive economic zones of India as an area beyond and adjacent to the territorial waters and the limit of such zone is 200 nautical miles from the baseline referred to in sub-section (2) of section 3. Under Section 7(7), the Central Government may, by a notification in the Official Gazette, extend, with such restrictions and modifications as it thinks fit, any enactment for the time being in force in India or any part thereof to the exclusive economic zone or any pa....
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....uced in Paragraph 26 (supra). 38.At this juncture, it will be profitable to note that the Indian position is consistent with the mandate of international law United Nations Convention on the Law of the Sea, 1982 ("UNCLOS, 1982" for short) dated 7th October, 1982 which has been signed by India as a member of the United Nations, the territorial sovereignty of the coastal State extends beyond the land territory only up to the outer limits of the territorial sea (the equivalent expression in our 1976 Act is "territorial waters") which is 12 nautical miles from the low water mark line of the coast (base line) which is consistent with the UNCLOS, 1982. India's customs waters [see Sec. 2(28) of the Customs Act] extend seaward up to the outer limit of the contiguous zone, namely a jurisdictional zone adjoining the territorial sea and encompassing the stretch of sea waters up to a distance of 12 nautical miles beyond the territorial sea. The coastal State has no sovereignty in the territorial sense of dominium over this zone, but it exercises sovereign rights for the purpose of exploring (continental shelf) and exploiting its natural resources. It has jurisdiction to enforce its fiscal, ....
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.... sovereign rights of exploitation of the resources of the zone and not sovereignty in the sense of territoriality or dominium. Exclusiveness attaches to resources exploitation only but does not incorporate the notion of reducing the area to the exclusive ownership or title of the coastal state. It is a resources linked concept of sovereignty in a restricted sense sans the incidents of territoriality. This is because, in other respects, the status of the waters in this area as part of the high seas is specifically recognised and retained in the convention. 41.In the exclusive economic zone, the coastal state has exclusive right to exploit for economic purposes like constructing artificial islands or oil platforms or drilling rigs for oil and mineral exploration and other purposes like fishing, scientific research etc. but this is subject to the navigation and over freight rights of non-coastal states. 42.Be that as it may, by virtue of Section 7 of the Territorial Waters Act, 1976 parliamentary enactments which are extended to notified areas comprised in the exclusive economic zone or continental shelf have effect as if the exclusive economic zone area/or the continental shelf....
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....ification of the amount payable then Sections 14 and 15 come into play. Therefore, one will have to look at Section 12 for the purposes of determining the duty chargeable. The taxable event, therefore, occurs the moment the goods enter the territorial waters of India. Section 53 of the Customs Act refers to transit of goods without payment of duty. It comes in Chapter-VIII, which deals with goods in transit. Section 53 of the Customs Act, inter alia, lays down that any goods imported for transit to any place outside India will not be liable to payment of customs duty. Therefore, reading Section 12 with Section 53, it is clear that although entry into territorial waters amounts to import, in case of transit of goods to any place outside India would not be liable to payment of customs duty. In other words, although the goods are chargeable, they are not liable to payment of customs duty because of Section 53 of the Customs Act. Therefore, when the goods enter the territorial waters, there is import but the object of the customs duty is not to levy tax on goods in transit to any place outside India. For the purposes of this case, the words "to any place outside India" are very importa....
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....hereinabove, the goods are meant for, Oil Rigs in the designated area under the Maritime Zones Act, 1976 and, therefore, the provisions of Sections 12, 14 and 15 of the Customs Act, would apply to the subject goods. In other words, the subject goods are not the goods in transit. 44.The point at issue in this case did not arise for determination before the Division Bench in the case of Amership Management (supra). 45.Now turning to the Division Bench judgment in case of Amership Management (supra), we must say that the Division Bench was concerned with the limited question as to whether Oil Rigs are vessel and if so a foreign going vessel in the light of the controversy raised in that judgment. Relying on the International Load Lines Convention, 1966 and Central Government notifications and upon the load lines certificates the Division Bench held that for the purposes of the Customs Act the expression "Vessel" is of the widest amplitude and must be construed to include "oil rigs". The Division Bench reasoned that since the oil rigs are stationed beyond the territorial waters of India, they would be considered as foreign going vessels engaged in other operations outside the ter....
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....ontiguous zone is that part of the sea which is beyond and adjacent to the territorial waters of the coastal States. The coastal States though do not exercise sovereignty over this part of the sea, however, they are entitled to exercise sovereign rights and can take appropriate action to protect its revenue and like matters. In other words, police and revenue jurisdiction of the coastal States extend to the contiguous zone. 48.In support of our view we also propose to refer to the mandate of international law which in this case does not go contrary to any part of our municipal law. Geneva Convention on Contiguous Zone of 1958 had also recognised this right of the coastal States under Article 24, Para I which says that the coastal States may exercise the control necessary to (a) prevent infringement of its customs, fiscal, immigration or sanitary regulations within its territory or territorial sea; (b) punish infringment of the above regulations committed within the territory or territorial sea. The UNCLOS of 1982 has also made similar provisions under Article 33. As per the said convention the exclusive economic zone and the contiguous zone are no longer described as being a par....
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....nal community and the Municipal law must respect rules of International law even as nations respect international opinion. The comity of Nations requires that Rules of International law may be accommodated in the Municipal law even without express legislative sanction provided they do not run into conflict with Acts of Parliament........" However, in the event where they do run into such conflict, the sovereignty and the integrity of the republic and the supremacy of the constituted legislatures in making the laws may not be subject to external rules except to the extent legitimately accepted by the constituted legislatures themselves. The Apex court went on to observe as under : ".........The doctrine of incorporation also recognises the position that the rules of international law are incorporated into national law and considered to be part of the national law, unless they are in conflict with an Act of Parliament. Comity of nations or no. Municipal Law must prevail in case of conflict. National Courts cannot say "yes" if Parliament has said no to a principle of international law. National Courts will endorse international law but not if it conflicts with national law. Nati....