India under different Acts
Anomalies in “ India ” under different Indirect Taxes
A Netizen has sent us this researched piece.
1. The Customs Act, 1962 extend to the whole of India . Under Section 2(27), India includes the Territorial Waters of India. Similarly, under Section 2(28) Indian Customs Water means the waters extending into the sea upto the limit of contiguous zone of India under Section 5 of Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 and includes any bay, gulf, harbour , creek or tidal river.
2. Under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, the limit of territorial water is 12 Nautical Miles. The contiguous zone of India is 24 Nautical Miles and the continental shelf of India and the exclusive economic zone of India is 200 Nautical Miles.
3. Ministry of External Affairs vide Notification No. S.O. 189 (E) dated 07.02.2002 has extended the Customs Act, 1962 and Customs Tariff Act, 1975 to the whole of continental shelf of India and exclusive economic zone of India for the following purposes :
(a) The prospecting for extraction or production of mineral oils in the continental shelf or the exclusive economic zone.
(b) Supply of any goods in connection with any of the activities referred to in Clause (a).
Notification also clarifies by way of explanation that mineral oils include Petroleum and Natural Gas.
4. Consequent to the issue of Notification by Ministry of External Affairs, the CBEC have issued Circular No. 17/2002 – CUS dated 13.03.2002 clarifying the implications of the said notification.
While clarifying Customs Duty implications for mineral oil extracted or produced in exclusive economic zone and continental shelf, it was also stated as under :
“Further, mineral oils produced in the EEZ or Continental Shelf of India would be deemed to be produced in India and subject to levy of Central Excise Duties under the Central Excise Act, 1944.”
CBEC rescinded the above circular substituting it with new Circular No. 22/2002 – CUS dated 23.04.2002. The only change in this circular is deleting the observation with reference to levy of Central Excise Duties under the Central Excise Act, 1944.
5. The Central Excise Act, 1944 extend to the whole of India . India is not defined under Central Excise Act, 1944.
However, under Notification No. 166/87-CE dated 11.06.1987, the Central Excise and Salt Act, 1944 has been extended to the designated area in the continental shelf and exclusive economic zone of India as declared in the Ministry of External Affairs Notification No. S.O. 429(E) dated 18.07.1986 .
In the above background, India will include the territorial waters of India which is 12 Nautical Miles. In addition, designated areas in the continental shelf and exclusive economic zone of India will be treated as territories of India for applicability of Central Excise Act, 1944.
6. Under Service Tax Legislation, Section 64 of the Finance Act, 1994 provides that levy will extend to the whole of India except the State of Jammu and Kashmir .
By Notification No. 1/2002 – ST dated 01.03.2002 provisions of Chapter 5 of Finance Act 1994 have been extended to the designated areas in the continental shelf and exclusive economic zone of India as declared by Notification Nos. S.O. 429 (E) dated 18 th July, 1986 and S.O. 643 (E) dated 19 th September, 1996 by the Ministry of External Affairs.
Consequent to the above, provisions of Service Tax Legislation are applicable to the whole of India which will include territorial waters of India which is 12 Nautical Miles and also to those designated areas in continental shelf and exclusive economic zone which are notified by the Ministry of External Affairs.
7. From the above, it can be seen that India has different territorial connotation for levy of taxes under 3 different legislations. It is giving rise to contradiction . Under one legislation it is India and under another legislation it is outside India .
The contradiction can be understood by a simple example. What will happen to oil or gas produced in non-designated areas of exclusive economic zone or continental shelf? Customs Act is not applicable for the obvious reason that it is within the territory of whole of India . Similarly, Excise Act is also not applicable being territory outside the whole of India under the Excise Act. Similarly, provisions under Service Tax Legislation are also not applicable as the same are not extended to whole of exclusive economic zone and continental shelf of India and these territories are outside India unlike in the case of Customs Act. The designated areas also differ under Excise Act and Service Tax Legislation as one covers one notification whereas the other covers two notifications.
8. May we request CBEC to bring uniformity to the taxing provisions as taxes have no equity, but the basic requirement is that there must be uniformity of approach under various legislations and not the adhocism for Indirect Taxes of significant magnitude?
So where does it place our SEZs ? Are they in India or not?
The Income Tax Act was amended in 2007 to define as “India” to be “the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil 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 Zone s Act, 1976, and the air space above its territory and territorial waters.”
Please also see What is India ? in 01.03.2007