TMI Blog2014 (10) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... Notifications issued under the Maritime Zone act, 1976 and merely because the goods are the pipelines passing through a non-designated area, it does not mean that they cannot be subject to levy of customs duty. Since the goods are not in transit to any other country but are in transit to the deemed territory of India, they are liable to customs duty in India and we hold accordingly. There are many situations where the goods are used/consumed in India even though they may not be physically present in India. Consider the case of a telecommunication satellite which beams communication signals for viewing/hearing in India. The satellite is physically situated in the outer space but its use is in India and when such satellites are brought to India for launching in outer space customs duty will apply. Similarly, in the case of ships or aircrafts brought to India for registration in India, they are subjected to Customs duties even though most of the time, they may not be physically present in India but might be plying outside India. Therefore, in the present case, since the pipe lines are used/consumed in India, they are liable to customs duty and we hold accordingly - Decided in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by M/s. L T specifying the exact length of each segment as per the drawings and specifications furnished by ONGC. Each segment was moulded to specific requirements and became unfit for use if cut into piece and could not be re-joined at the site of installation. The line pipes were packed in 8 reels and brought to Mumbai by MV HLL Momet Happy Rover. The importer approached the Commissioner of Customs (Export Promotion) and requested for permission to allow transhipment of 19739.50 meters of line pipes on the plea that the same were meant for use in non-designated areas and to clear 10387.50 meters of line pipes on payment of duty. The Commissioner granted permission to do so. However, the Special Investigation Intelligence Branch, on the basis of information received that the importer had mis-represented the facts before the Commissioner (Exports) to evade payment of duty, intercepted the consignment. Therefore, the permission granted earlier was withdrawn and a show cause notice was issued to the appellant proposing to confiscate 30127 meters of line pipes under the provisions of Section 111 of the Customs Act, 1962 and impose penalties under Section 112 ibid.; and also to reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e laid in designated areas on payment of duty and permitted transhipment of 19,739.50 meters to be laid in non-designated areas without payment of duty against execution of bond for 100% value duly supported by bank guarantee for 50% of the FOB value. The appellant executed the bond and bank guarantee as directed and permission was also granted. The appellant also filed two separate bills of lading for lengths to be laid in the designated area and in the non-designated area. However, permission so granted by the Commissioner (Export Promotion) for transhipment was reversed by Commissioner of Customs (Import). Therefore, the appellant filed bills of entry for home consumption for the entire quantity of line pipes under protest and paid the duty under protest. Simultaneously, they also filed shipping bills for export for the length of the line pipes to be laid in non-designated areas. The proper officer accepted the shipping bills by making an endorsement that the export of line pipes is allowed and the refund was subject to clarification from the Ministry of Finance regarding use of line pipes in non-designated area. These facts would make it abundantly clear that the appellant neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Madras Co-operative Central Land Mortgage Bank Ltd. vs. CIT (1968) 67 ITR 89 (SC) wherein a question arose whether income from interest on government securities can be apportioned between trading and non-trading purpose. The hon'ble apex Court held that merely because there is no statutory provision for apportionment, it cannot be held that apportionment cannot be done. A similar view was taken by the apex Court in the case of Tata Iron and Steel Co. Ltd. vs. State of Bihar (1963) 48 ITR 123 (SC). Similar principle was adopted by the Tribunal in the case of Helios Antennas Electronics 1998 (26) RLT 131 in the context of Notification 175/1986. The said notification provided exemption to goods valued up to value of ₹ 15 lakhs. The assessee therein had cleared goods of value of ₹ 14,82,575/- and a balance of ₹ 17,425/- was left to cross the exemption limits. Subsequently, the assessee cleared antenna of value of ₹ 54,500/- and deducted the amount of ₹ 17,425/- and paid duty on the rest. The Revenue sought to deny the exemption and sought to levy duty on the whole value. This Tribunal held that the total amount has to be apportioned and only on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a limited right has been granted to costal State with respect to 500 meters around artificial islands, installation and structures. 4.7 India is a signatory to the above law and therefore, the provisions of the above law would apply. It is the contention that the area of 500 meters surrounding the installation and platforms has been included in the designated area only for the purpose of safety requirements and not for the purpose of imposition of customs duties. Accordingly, it is contended that even on the 500 meters surrounding the installations, no customs duty would be leviable. 4.8 As regards the reliance placed by the Revenue in the case of Aban Lloyd Chiles Offshore Ltd. vs. Union of India 2008 (227) ELT 24 (SC), the hon'ble apex Court was concerned with the question as to whether a vessel going from the port in India to a platform notified as designated area could be regarded as a foreign going vessel thereby making them eligible for certain exemptions. In that context, the apex Court held that since platform has been notified as designated area they cannot be regarded as falling outside the territorial waters of India. The said decision was not concerned with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the provisions of Chapter VIII. In Chapter VIII, under Section 54 (2), transhipment of imported goods without payment of duty is permitted and under sub-section (1) thereof, a bill of transhipment has to be presented to the proper officer. Rules for transhipment of goods at the port of Bombay have been notified under Section 54 of the Customs Act, 1962. These rules provides for transhipment to a foreign port or a customs port. Thus, transhipment presupposes port to port movement of goods. Hence transhipment is intrinsically connected with importation and exportation of goods. In the present case, the line pipes are not being exported when carried to the high seas. Hence, transfer of line pipes from cargo vessel to CSO Venturer does not come within the purview of transhipment under Section 54 of the Customs Act, 1962. This transfer is just an act of loading the pipelines on to the laying vessel for the purpose of being laid in the high seas. 5.3 The eight reels of the pipelines have been imported and as per Section 12, these are dutiable goods. For customs assessment, the goods as presented are relevant. Actual use of the goods whether they are laid or not or where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nasmuch as the government has designated the platforms as well as 500 meters of the area surrounding to it to be the area where the provisions of Customs Act, 1962 and the Customs Tariff Act, 1975 would apply. Therefore, this contention has no merit at all. Accordingly, he pleads for upholding the impugned order by dismissing the appeal. 6. We have carefully considered the submissions made by both the sides. 6.1 The appellant has placed much reliance on the decision of the hon'ble apex Court in the case of Sun Industries (supra). In the said case, the apex Court was dealing with a situation where M/s. Sun Industries at Kolkata had shipped 6000 bundles containing 100000 sets of plywood panels for tea chests on the M.V. Mohur Gang. The shipment of the said goods was intended for delivery at Colombo under claim for drawback. On 20/06/1980, while proceeding on the voyage after shipment of the goods, the ship developed engine trouble on the way and returned back and ran aground in Indian territorial waters at the port of Paradeep. The fitting stores and cargo vessel had been salvaged into India under the supervision of Port Trust Paradeep. M/s. Sun Industries applied for drawb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that, 13. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. We are of the considered view that the ratio of the decision in the case of Sun Industries does not apply to the facts of the present case at all. 6.3 As regards the reliance placed on the decision of the European Court of Justice in the case, that was in the context of a VAT transaction. The said decision was in the context of GST where the goods were passing from one country to another. It was in that context it was held that length of optic fibre cable beyond the territorial jurisdiction of one country cannot be subject to levy of GST. That is not the situation obtaining in the case before us. In the present case, the pipelines are laid connecting two designated areas and these two designated areas fall within the territorial jurisdiction of India. Therefore, the usage of the entire pipeline is for conveyance of liquids from one part of India into another and, therefore, the entire pipeline has to be construed as being used in India. 6.4 It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sshipment is bereft of any logic. 6.6 As regards the contention that inasmuch as the appellant had filed shipping bills, therefore, the transaction should be deemed as exports, this contention is also not acceptable for the following reasons. In an export transaction the goods have to be taken outside India by exporter in India to another importer situated outside India and consideration for the transaction has to be received in India. In the case before us, there is no such transaction involving two parties for which payment of consideration is received in convertible foreign exchange. In the present case, the appellant himself has taken the goods from Bombay port to another designated place in the Continental Shelf of India to which the provisions of Customs Act, 1962 have been extended. Further, there is no sale or transfer of property to another person so as to constitute export. In these circumstances, the claim of the appellant that the goods should be deemed to have been exported out of India is quite meaningless and untenable. 6.7. We have perused the decision in the case of Aban Loyd Chiles Offshore Ltd. (supra). In the said decision the apex Court considered the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f search, seizure or confiscation of vessel for violation of its customs or fiscal or penal laws in the contiguous zone but it cannot exercise these rights once the delinquent vessel enters the high seas. It has no right of hot pursuit except where the vessel is engaged in piratical acts which are liable for arrest and condemnation within the sea for the jurisdiction over piracy since historical times has been recognized as universal in international law and any State may exercise that jurisdiction over a pirate irrespective of the usual considerations of territoriality which limit the penal jurisdiction. 71. With the adoption of UNCLOS, 1982, the legal incidents of the high seas have been partly modified. UNCLOS, 1982 is a comprehensive code on the international law of sea. It codifies and consolidates the traditional law within a single, unificatory legal framework. It has changed the legal concept of continental shelf and also introduced a new maritime zone known as exclusive economic zone. Exclusive economic zone is a new concept having several new features. What is significant for our purpose is that the coastal State has in its zone only sovereign rights of exploitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The coastal State has sovereignty over territorial waters but it has only sovereign rights over the continental shelf and the exclusive economic zone. The Customs Act extends to the whole of India and not simply to the territorial waters of India. Customs Act does not contain any provision permitting determination of the maritime limits. For this purpose, one has to revert to the Maritime Zones Act, 1976. Hence, reference to the Maritime Zones Act, 1976 is inevitable while considering any issue relating to maritime issues. 76. Appellants may be carrying on its operation outside the territorial waters, as understood under Section 3 of the Maritime Zones Act, 1976. Nevertheless, for all purposes, it is within the limit where the coastal State has a sovereign right or power to enact or extend any law, and the advantage to a foreign going vessel will not be available under Sections 86 and 87 of the Customs Act to such vessels. 77. The Counsel for the Appellants may be right in contending that the limits of the territorial waters has not been extended. The limits of territorial waters as defined in Section 3 of the Maritime Zones Act, 1976 has not been extended but unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Excise Act, 1944. 78. Similarly, in Circular No. 22/2002 dated 23.04.2002 [2002(142) ELT T20], the said notification i.e. S.O. 189 (E) has been clarified in para 3 as under: - 3. The implication of the said notification is that mineral oils extracted or produced in the EEZ and Continental Shelf of India if brought to the mainland shall not be treated as import and therefore, no customs duty shall be leviable on such mineral oils. Likewise, the goods supplied from the mainland to a place in EEZ or Continental Shelf of India in connection with any activity related to mineral oil extraction or production shall not be treated as export under the Customs Act, 1962 and consequently, no export benefits can be availed of on such supplies. Another implication of the said notification is that bringing of any goods from any other country to any place in EEZ or Continental Shelf of India in connection with any activity related to extraction or production of mineral oils shall be treated as import under the Customs Act, 1962 and would be charged to duty accordingly. 79. It may not be correct to contend that the oil rigs installed by the Appellants answer the des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and Others [215 ITR 638] after considering Article 1 and Article 297 of the Constitution of India, the provisions of the Maritime Zones Act, 1976 and the provisions of the Income Tax Act which had been extended in the same way as has been extended in a similar manner as the Customs Act, came to the conclusion that the salary received by the assessees for the services rendered in India while working on the continental shelf/exclusive economic zone and other maritime zones shall be liable to tax under the Income Tax Act after the issuance of the notifications, extended the applicability of the Income Tax Act to the continental shelf and exclusive economic zones. Though in the said case, it was held that the salary income earned by the assessee prior to 01.04.1983 could not be charged to tax in the assessment year 1983-84 as the continental shelf and exclusive economic zone were not part of India prior to the issuance of the notifications by the Government of India extending the applicability of the Income Tax Act to continental shelf and exclusive economic zones. In the said case, the facts were, that the assessees were employees, during the assessment year 1983-84, of a non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to the applicability of Sections 6 and 7 of the Maritime Zones Act, 1976 together with the notifications issued pursuant thereto were not considered at all. 85. By notification S.O. 429 (E) dated 18.07.1986, and notification S.O. 643 (E) dated 19.09.1996, issued under clause (a) of sub-section (5) of Section 6 and clause (a) of sub-section (6) of Section 7 of the Maritime Zones Act, 1976, the Ministry of External Affairs has declared certain areas in the continental shelf or, in the exclusive economic zone of India, where certain installations, structures and platforms of certain coordinates given in the Schedule are situated and the areas extending upto 500 meters from such installations, structures and platforms as designated areas for the purposes of Sections 6 and 7 of the Maritime Zones Act, 1976. The Ministry of Finance (Department of Revenue) by two corresponding notifications no. 11/87-Customs dated 14.01.1987 and 64/97-Customs dated 01.12.1997 issued under clause (a) of sub-section (6) of Section 6 and clause (a) of sub- section (7) of Section 7 of the Maritime Zones Act, 1976 have extended the Customs Act and Customs Tariff Act to the aforesaid designa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for transshipment of the goods for that purpose would not be a foreign going vessel under Section 2(21) of the Customs Act. The area of discharge or unloading/loading is within India by virtue of the deeming provisions of Sections 6 and 7 of the Maritime Zones Act, 1976. The Customs Act stands extended to the designated areas by virtue of the Maritime Zones Act, 1976. The oil rigs carrying on operations in the designated area is not a foreign going vessel as the same would be deemed to be a part of Indian territory i.e. going from the territory of India to an area which also deemed to be part of the territory of India. 86. As stated above, contiguous 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 take appropriate steps to protect its revenue and like matters. The police and revenue jurisdiction of the coastal States is extended to the contiguous zone as well. 87. The question whether the Courts can look into the provisions of the international treaties/conventions is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional law, rather the same is in consonance with UNCLOS, 1982. 91. Article 127 of UNCLOS, 1982 deals with customs duties, taxes and other charges. Clause (1) provides that traffic in transit shall not be subject to any customs duties, taxes or other charges except charges levied for specific services rendered in connection with such traffic and Clause (2) provides that means of transport in transit and other facilities provided for and used by the land locked States shall not subject to taxes or charges higher than those levied for the use of means of transport of the transit State. According to this Article, where the goods are in transit to other country shall not be subject to any customs duties, taxes or other charges except for the charges levied for specific services in connection with such traffic. In other words, there is no prohibition for levying customs duties on the goods which are not in transit for onward transmission to any other country. If the goods are brought in only while proceeding to other country, then no customs duty can be levied. In all other cases, it seems to be permissible. 92. In the present case, as the goods were being taken to a territory whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons where the goods are used/consumed in India even though they may not be physically present in India. Consider the case of a telecommunication satellite which beams communication signals for viewing/hearing in India. The satellite is physically situated in the outer space but its use is in India and when such satellites are brought to India for launching in outer space customs duty will apply. Similarly, in the case of ships or aircrafts brought to India for registration in India, they are subjected to Customs duties even though most of the time, they may not be physically present in India but might be plying outside India. Can it be said that such ships/aircrafts are not used in India? Following the same analogy, when a pipeline is laid between two places in India, even if part of the pipeline may lie outside India, its use/consumption is in India. Customs duty is destination based consumption tax and the levy is imposed where the goods are consumed. Therefore, in the present case, since the pipe lines are used/consumed in India, they are liable to customs duty and we hold accordingly. 8. In view of the above legal position we are of the considered view that the duty demand c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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