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[Cites 47, Cited by 0]

Custom, Excise & Service Tax Tribunal

Larsen & Toubro Ltd vs Mumbai on 17 July, 2014

        

 
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI



APPEALS NO: C/1154/2001 

[Arising out of Order-in-Original CAO No: 256/2001/CAC/CC/MCT dated 08/08/2001 passed by the Commissioner of Customs (Import), Mumbai.]


For approval and signature:


     Honble Shri Ashok Jindal, Member (Judicial)
     Honble Shri P.R. Chandrasekharan, Member (Technical)


	


1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes





Larsen & Toubro Ltd.

Appellant
vs


Commissioner of Customs (Import) 


Mumbai 

Respondent

Appearance:

Shri V. Sridharan, Sr. Advocate with Shri Prakash Shah, Advocate for the appellant Shri D. Nagvenkar, Additional Commissioner (AR) for the respondent CORAM:
Honble Shri Ashok Jindal, Member (Judicial) Honble Shri P.R. Chandrasekharan, Member (Technical) Date of hearing: 17/07/2014 Date of decision: 12/09/2014 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
The appeals are directed against Order-in-Original CAO No: 256/2001/CAC/CC/MCT dated 08/08/2001 passed by the Commissioner of Customs (Import), New Custom House, Mumbai.

2. Vide the impugned order, the learned adjudicating authority has confirmed a customs duty demand of ` 12,09,37,878/- on 197,39.50 meters of line pipes imported by the appellant M/s. Larsen & Toubro Ltd. (L&T for short) vide Bill of Entry dated 10/03/2000. He also held that 30127 meters of line pipes valued at ` 27,51,01,451/- imported by the appellant are liable to confiscation under Sections 111(f), 111(l) and 111(m) of the Customs Act, 1962 and imposed a penalty of ` 3 crore on the appellant under the provisions of Section 112(a) and (b) of the Customs Act, 1962. Aggrieved of the same the appellant is before us.

3. This is the second round of litigation. In the first round of litigation, when the matter was heard by this Tribunal, this Tribunal vide order dated 22/10/2003 held that M/s. L&T are liable to pay duty only in respect of line pipes which are used in the designated areas and not for the length of the pipes which are used in the non-designated areas. This order of the Tribunal was challenged by the Revenue before the honble Bombay High Court and the honble Bombay High Court vide order dated 19/04/2012 set aside the order of the Tribunal and remanded the proceedings back for denovo consideration.

3.1. The facts relevant to the case, briefly, are as follows: M/s. L&T had imported 11 segments of pre-casted line pipes as per the requirement of ONGCs CRMP II Project. The said pipes were required to be installed for water injection to augment oil production. All the line pipes except one segment were for installation at designated platforms and were used for connecting two designated platforms and in the process the middle portion passed through non-designated area. The line pipes were manufactured by Coflexip Stena Offshore Asia Pacific Pty. Ltd., France as per the purchase orders placed 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 transshipment 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 reject the claim for transshipment in respect of the said goods and to demand customs duty amounting to `12,09,37,875/- leviable on the said goods under the provisions of Section 28(1) of the Customs Act, 1962 and to appropriate the customs duty already paid vide Bill of Entry dated 10/03/2000. The adjudicating authority noted that vide Section 6(5) and 7(6) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zone Act, 1976, the Central Government was authorized to declare any area under the Continental Shelf and Exclusive Economical Zone as designated zones and to extend the Customs Act, 1962 and Customs Tariff, Act, 1975 to the designed area. Vide notifications dated 18/07/1986 and 19/06/1996 the Central Government had declared certain installations, structures and platforms and areas extending up to 500 meters from the said installations in the exclusive economic zone of India as designated area and in terms of the aforesaid notifications the provisions of Customs Act, 1962 and Customs Tariff Act, 1975 have applicability in those areas. Accordingly, he held that the entire length of pipelines have been imported into India and is meant for home consumption inasmuch as the pipelines lying in the non-designated area cannot be cut to pieces since it would become unfit for use. Therefore, he held that the length of pipelines for transshipment was only notional and was contained in the same goods presented for clearance for home consumption and accordingly held that even if part of the goods remained outside India since use of the goods is in India, he held that the goods are liable to import duty on the entire length. Accordingly, demands were confirmed by the impugned order and it is this order that is the subject matter of appeal before us.

4. The learned counsel for the appellant made the following submissions:

4.1. The appellant never intended to clear the imported pipes for home consumption. Therefore, they had sought transshipment of the imported pipes by filing a transshipment of Bill of Lading in favour of the master vessel CSO Venturer at Bombay High. However, due to adverse weather conditions, they could not effect the transshipment and the goods had to be brought to the Port of Mumbai. On 09/03/2000 the appellant was permitted by the Commissioner of Customs (Export) to file Bill of Entry for 10387.50 meters to be laid in designated areas on payment of duty and permitted transshipment 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 transshipment 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-designed area. These facts would make it abundantly clear that the appellant never intended to clear line pipes of 19739.50 meters for home consumption and these line pipes were always intended to be free shipped and installed at the Bombay High. It was the understanding of the appellant that the length of pipes that would be installed within the 500 meters of the platform alone is dutiable and the remaining length was not dutiable and, therefore, they filed two bills of entry, one for a quantity of 10387.50 meters which should be the length that would be laid in the designated areas and another for the balance 19739.50 meters, which was the length of the pipe line to be laid in the non-designated areas.
4.2. The honble Supreme Court in the case of Collector of Customs, Calcutta vs. Sun Industries 1988 (35) ELT 214 (SC) has held that:
export means that goods must be taken out to a place outside India. The expression taking out to a place outside India would also mean a place in high seas if it is beyond the territorial waters of India. Place means a particular point or portion of space, especially that part of space occupied by or belonging to a thing under consideration, a definite locality or location. It also means an open space or square in a city. Therefore, in international trade the ship beyond the territorial waters of a country would be a place outside the country. 4.3. It is the appellants contention that taking the line pipes to high seas amounts to taking outside India since, in the present case, the line pipes were taken to Bombay High for installation and the same amounts to exports and, therefore, no duty is payable on 19739.50 meters taken to Bombay High for installation since they are directly taken from the Customs area to outside India without any home consumption. Even assuming that the length of pipes falling within 500 meters from the platform is subject to Customs duty, no duty can be demanded on that portion of line pipes which fall outside the designated area.
4.4. The contention of the Revenue that since the line pipes are continuous in nature and, therefore, the same cannot be apportioned in order to levy customs duty on only a portion of it, this argument is not tenable since the principle of apportionment is a well recognized principle and need not be incorporated in form of a specific provision in the statute. Reliance is placed on the decision of the apex Court in the case 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 honble 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 limit. 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 the value which is above the exemption limit of ` 15 lakhs, excise duty can be levied. Similar view has been taken by this Tribunal in the case of Pyromaster Furnaces (P) Ltd. 2001 (47) RLT 226 and Aromen Engineering Company Pvt. Ltd. 2002 (147) ELT 574. In any case, Section 12 of the General Clauses Act provides for valuation of duty by saying that duty has to be taken pro-rata in enactments.
4.5. A question arose before the European Court of Justice in Aktiebokget vs. Skatte Venkat. In that case, fibre optic cable was supplied and laid between Sweden and another member country. Supplies of goods were taxable. Part of the cable was within the territorial waters of the two countries at the two ends and in between distance/length was outside the territorial waters of both the countries. European Court of Justice held that the length which fall in two ends within the territorial waters of two countries was taxable in the respective countries and in-between distance was not taxable at all. If the above principle is applied to the facts of the present case, applying the principle of apportionment, customs duty is required to be paid only on that portion of line pipes which falls within the 500 meters around the platforms. Accordingly, it is submitted that no customs duty is payable on 19739.50 meters of line pipes laid in non-designated areas.
4.6. It is further contended that no customs duty is payable even on the length of pipes falling within the 500 meters surrounding the platforms. Article 56 of the United Nations Convention on the Law of the Seas, 1982 (UNCLOS), confers jurisdiction on a State for the purpose of establishment and use of artificial island and installation of structures. As per Article 60, the costal State shall have exclusive jurisdiction over the artificial islands, installations and structures including jurisdiction with regard to customs, fiscal, health, safety and immigration laws and regulations. The said article further provides that States may, where necessary, establishes reasonable safety zones around such artificial islands, installations and structures in which it may take appropriate measures to ensure the safety of both of navigation and of the artificial islands, installation and structures. The breadth of the safety zones shall be determined by the coastal State and shall not exceed a distance of 500 meters around them. Thus, only 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 Loyd Chiles Offshore Ltd. vs. Union of India 2008 (227) ELT 24 (SC), the honble 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 the question of applicability of customs duty in 500 meters surrounding the platform. Accordingly, it is submitted that no customs duty is payable on the length of pipe line falling within the 500 meters surrounding the platforms.
4.9. Alternatively, it is submitted that no customs duty is payable on the length of pipelines falling outside the designated area. In any event, no duty is payable on 3003.70 meters of line pipes which was laid in between two non-designated platforms and as such no duty can be levied.
4.10. Lastly, it is contended that, in the facts and circumstances of the case, no penalty can be imposed on the appellant under Section 112(a) and (b) of the Customs Act, 1962.
5. The learned Additional Commissioner (AR) appearing for the Revenue, while rebutting the contentions of the learned counsel for the appellant, made the following submissions.

5.1. In Burma Shell Oil Storage vs. The Commercial Tax Officer, AIR 1961 SC 315, the apex Court while interpreting the word export under Sea Customs Act, had held that the two notions of export and import go in pairs. Therefore, if the appellants contention is that they have exported the pipelines falling outside the designated area, the implication is that they had imported the same into India and therefore, customs duty would be leviable on such imports and the question of any transshipment would not arise at all. Similarly, in the case of State of Kerala vs. The Cochin Coal Company Ltd. AIR 1961 SC 408 the honble apex Court held that the concept of export in Article 286 postulates just as the import, the existence of two termini as those between which the good are intended to move or between which they are intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port. Further export as defined in Section 2(18) of the Customs Act, has two phrases, namely (i) taking out of India, and (ii) to a place outside India. Therefore, both the phrases need to be considered for harmonious interpretation. In the present case, since the pipelines are not taken to a place outside India it cannot be said that the appellant have exported the goods.

5.2. As per Section 45 of the Customs Act, 1962, the imported goods can be either cleared for home consumption or warehoused or transshipped in accordance with the provisions of Chapter VIII. In Chapter VIII, under Section 54(2), transshipment of imported goods without payment of duty is permitted and under sub-section (1) thereof, a bill of transshipment has to be presented to the proper officer. Rules for transshipment of goods at the port of Bombay have been notified under Section 54 of the Customs Act, 1962. These rules provides for transshipment to a foreign port or a customs port. Thus, transshipment presupposes port to port movement of goods. Hence transshipment 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 transshipment 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 they are laid, are not relevant for customs assessment. Hence, the entire consignment of 30,127 meters of line pipes are chargeable to duty.

5.4. Reliance is also placed on the decision of the Aban Loyd Chiles Offshore Ltd. (supra) where in the honble apex Court held that Article 127 of UNCLOS, 1982 prohibits Customs duty imposition only in case goods are brought into country for proceeding to another country. In all other cases, it makes imposition of duty permissible. In the present case, the appellant has not brought the 19,739.50 meters of line pipes for taking out to another country. They are meant for laying in the non-designated area and, therefore, in view of the above legal position, the said goods are also liable to duty.

5.5. The learned Additional Commissioner (AR) also points out that transshipment of the vessel in the high seas is clearly impractical as each reel weighs about 200 MTs and such transfer in the mid-sea is clearly not advisable and, therefore, the appellants claim that they were intending to transship the goods is only a camaflouge or mis-statement so as to avoid customs duty liabilities. Even the documents have been manipulated and separate bills of lading has been prepared and the splitting of documents into goods meant for designated area or non-designated areas is an artificial arrangement to misrepresent to the Customs. Therefore, the penalty imposed on the importer is justified.

5.6. As regards the reliance placed on the judgment of the European Court of Justice, the same related to imposition of VAT which has nothing to do with the levy of Customs duty. Therefore, the decision in the said case is not relevant. Also being a foreign judgment, the decision has no applicability in India. Similarly, the reliance placed on the case of Sun Industries (supra) is also of no avail in view of the definition of export which mandates that it should involve taking out of India to a place outside India. Similarly, the reliance placed on Lucas TVS 1987 (28) ELT 266 is also of no avail as the said decision pertained to an export transaction whereas in the present case, the issue involved is levy of customs duty on an import transaction.

5.7. As regards the plea that even for the portion of the line pipes falling within the 500 meters from the platform customs duty is not applicable, this contention is completely wrong inasmuch 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 honble 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 of 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 drawback under Section 75 of the Customs Act and the drawback claims were rejected on the ground that the goods could not be deemed to have been exported. It was in that context, the apex Court considered the matter. In appeal, the Tribunal found that the shipment was under a CIF contract and that on loading of the goods on board, the title passed to the purchaser. The Tribunal found that the ship had left Kolkata and in fact had passed beyond the territorial waters of India and by reason of the ship having passed beyond the territorial waters with the goods on board, the export of the goods out of India had been completed. This view taken by the Tribunal was affirmed by the honble apex Court where it observed that the expression taking out to a place outside India would also mean a place in the high seas and it is beyond the territorial waters of India. Therefore, the goods which were taken out to the high seas outside the territorial waters of Indian will come within the expression taking out to a place outside India. The honble apex Court also noted that the expression place will depend for its connotation on the context in which it is used. While coming to the said conclusion the apex Court also relied on the decision of the Madras High Court in the Lucas TVS case (supra) wherein also a similar view had been taken. We note that, in the present case, there was no transaction of taking the goods to a foreign country. The alleged pipes were taken to the designated areas in the Continental Shelf and Economic Zone of India and, therefore, the question of treating the transaction as an export transaction would not arise at all.

6.2. We further notice that there was no passing of title of the property in goods to another party. When the goods were taken out for laying in the designated as well as non-designated areas, the property of the goods vested with the importer, i.e., M/s. L&T and not on anybody else and, therefore, the concept of export transaction where the title of the property passed hands also does not exist. Thus, the facts involved in the Sun Industries case (supra) are different and distinguishable from those involved in the present appeal before us and, therefore, following the ratio of the decision of the honble apex Court in the case of Al Noori Tobacco Products India Ltd. [2004 (170) ELT 175 (SC)], wherein it was 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 the case of the appellant that the pipeline laid in non-designated areas is not for use in India as the pipeline is meant for conveyance of liquids. Since the conveyance of liquids takes place from one designated area to another, usage of the pipeline is for such purpose which is within India and, therefore the ratio of the decision of the European Court of Justice would not apply to the facts of the present case. Further, the taxable events in GST and Customs are different. While the taxable event in GST is supply of goods within the taxable territory, the taxable event in the Customs Act is import or export of goods, that is, bringing into or taking out of the goods, a country. Therefore, a decision pertaining to a GST law, in our considered view, cannot be applied to a customs transaction. It is a settled principle that statutory construction must be home-spun, even if hospitable to alien thinking [AIR 1978 SC 548]. While relying on the decisions rendered on a law legislated outside India, it is worth remembering the honble Courts advice in this regard extracted from [AIR 1981 Patna 309 at P. 311 (FB)]-

It is part of judicial prudence to decide an issue under a specific statute by confining the focus to that statutory compass as far as possible. Diffusion into wider juris prudential areas is fraught with unwitting conflict or confusion. 6.5. The appellant has argued that the goods were brought for transshipment. This argument is also incorrect for the reason that transshipment takes place when goods are brought into one Port of India for transportation to another port situated outside India. In other words, as per the Transshipment Rules notified under Section 54 of the Customs Act, 1962, it is clear only when the goods move from one port in India to another port situated outside India, it can be said that there is a transshipment of goods which are not subject to levy of customs duty. In the present case, there is no such transshipment where the goods are taken from one port of India to another port situated outside India. In the present case, the goods have moved from the Bombay port to a designated place in the Continental Shelf and Exclusive Economic Zone of India and, therefore, the goods have moved from one place in India to another place in India. Therefore, the argument that the goods were transshipped or were intended for transshipment 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 territorial extension by Notification of designated areas under Section 6 and 7 of the Maritime Zone Act, 1976 and the application of Customs Act, 1962 and Customs Tariff Act, 1975 to such areas and the honble apex Court held as follows:

69. In exercise of the powers vested in the Central Government under sub-section (6) of Section 6 and sub-section (7) of Section 7 of the Maritime Zones Act, 1976, the Government extended the Customs Act, 1962 and the Customs Tariff Act, 1976 to the designated areas of the continental shelf and the exclusive economic zone by notification published in the Official Gazette referred to and reproduced in paragraphs 30 to 33.
70. It may be noted that Indian position is consistent with the mandate of international law United Nations Convention on the Law of Sea, 1982 (UNCLOS, 1982) dated 07.10.1982 which has been signed by India as a member of the United Nations. Under UNCLOS, 1982, the territorial sovereignty of the coastal State extends beyond the land territory only upto the outer limits of the territorial sea which is equivalent to the expression in the Maritime Zones Act, 1976. Territorial waters extends upto 12 nautical miles from the low water mark line of the coast (base line) which is consistent with the UNCLOS, 1982. Under sub- section (28) of Section 2, Indian customs water extends seaward up to the limit of the contiguous zone, namely, a jurisdictional zone adjoining the territorial sea and encompassing the stretch of sea waters upto a distance of 12 nautical miles beyond the territorial waters (which means 24 nautical miles from appropriate baseline). The coastal State has no sovereignty in territorial sense of dominium over the contiguous zone, but it exercises sovereign rights for the purpose of exploring the continental shelf and exploiting its natural resources. It has jurisdiction to enforce its fiscal, revenue and penal laws by intercepting vessels engaged in suspected smuggling or the other illegal activities attributable to a violation of the above laws or the existing laws. Undoubtedly, the waters which extends beyond the contiguous zone are traditionally the domain of the high seas or open sea which have, juristically speaking, the status of international waters where all States enjoy traditional high seas freedoms including freedom of navigation. The coastal States can exercise their right of 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 exploitation of the resources and not sovereignty in the sense of territoriality or dominium. Exclusiveness attaches to resources exploitation only but does not incorporate the ownership of title of the coastal State.
72. It is a concept of restricted sovereignty linked to the resources sense sans the incidents of territoriality. This is so because, in other respects, the status of the waters in this area as a part of the high seas is specifically recognized and retained in the Convention.
73. In the exclusive economic zone, the coastal State has exclusive right to exploit for economic purposes like constructing artificial islands or other platforms or drilling rigs for oil and mineral exploration and other purposes like fishing, scientific research, etc but the same is subject to the navigation and over-freight rights of non-coastal States.
74. The oil rig is deemed to be stationed at a designated area in the continental shelf/exclusive economic zone. The designated area is within the territorial limits of the coastal State. The maritime limit of the coastal State would include territorial waters, continental shelf and exclusive economic zone, as recognized under the International Convention on the Law of the Sea including rights, exclusive jurisdiction and duties of the coastal State with regard to customs, fiscal safety, health, immigration laws and regulations [See Articles 56, 60, 77, 80 of the United Nations Convention on the Law of the Sea, 1982 (UNCLOS, 1982)].
75. Pursuant to such recognition of the territorial limit in the Comity of Nations, the coastal State has the power to legislate or take such appropriate measures to exercise its sovereign power over that territorial limit. Maritime Zones Act, 1976 was enacted pursuant to such recognition, declaring designated area in the continental shelf/exclusive economic zone and extending the Customs Act to such areas. The notifications referred to in the foregoing paragraphs were issued pursuant to such recognition and the Customs Act and the Customs Tariff Act were extended to the designated area of the continental shelf, exclusive economic zone. There is no challenge to the Maritime Zones Act, 1976, the various notifications issued declaring designated area as well as extending the Customs Act as being ultra vires or that its provisions are contrary to the provisions of other enactments. 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 under Sections 6 and 7 thereof, sovereign rights can be exercised by the coastal States on a area which is recognized as the maritime limit of the coastal State which is being exercised. Section 2(21) of the Customs Act cannot be read in isolation. The entire scheme of the Customs Act and other Acts such as Maritime Zones Act, 1976 which are in pari-materia have to be read together. Reading of Sections 6 and 7 of the Maritime Zones Act, 1976 makes it clear Indias jurisdiction over the Maritime Zones Act, 1976 extends to the continental shelf and exclusive economic zone. Consequently, if mineral oil is extracted or produced in the exclusive economic zone or continental shelf and is brought to the main land, it will not be treated as import and, therefore, no customs duty would be leviable. Likewise, goods supplied to a place in the exclusive economic zone or continental shelf will not be treated as export under the Customs Act and no export benefit can be availed on such supply. Any mineral oil produced in the exclusive economic zone or continental shelf will be chargeable to Central Excise Duty, as goods produced in India. Implication of notification no. S.O. 189 (E) dated 07.02.2002 and its consequences have been clarified in Circular No. 17/2002-Customs dated 13.03.2002 [2002 (141) ELT T10] in following terms:
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. 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.
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 description foreign going vessel. A vessel may be a foreign going vessel but if the oil rig is situated in the area to which the Customs Act applies or extends, the aid of Section 2(21) of the Customs Act cannot be taken to get the benefit under Sections 86 and 87 of the same Act. The principle underlying under Sections 86 and 87 is that the stores are consumed on board by a foreign going vessel. If the so-called foreign going vessel is located within a territory over which the coastal State has complete control and has sovereign right to extend its fiscal laws to such an area with or without modifications and the stores were consumed in the area to which the Customs Act has been extended, reference or reliance to the vessel being a foreign going vessel shall be of no consequence and the customs duty would be leviable as the goods are consumed within the territory to which the Customs Act has been extended as per the Maritime Zones Act, 1976 and the International Convention  UNCLOS, 1982.
80. We do not find any ambiguity in this situation. The interpretation given by the High Court in Pride Foramers case (supra) would not result in any absurd situation as contended by the Counsel for the Appellant. The Appellants wants the Court to read Section 2(21) of the Customs Act in isolation, which would not be the correct approach. The Customs Act has to be read along with the provisions of the Maritime Zones Act, 1976.
81. The contention of the Appellants that an attempt is being made to substitute the phrase appearing in the Customs Act contrary to its intent is without any basis. What the Appellants want is that, for the present adjudication or case, the Court should not look beyond Sections 2(21), 86 and 87 of the Customs Act and that it should not look into the other Acts. This may not be the right approach as it would result in undermining the power of the Parliament to enact laws as well as to render the provisions of Maritime Zones Act, 1976 nugatory and meaningless.
82. The fact that the stores are unloaded and consumed within the maritime boundary or within the limit of Customs Act, Section 12 will be attracted as it would be construed that there would has been an import within the territory of India to which the Customs Act applies.
83. A Division Bench of Madras High Court in Commissioner of Income Tax v. Ronald William Trikard 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 assesses 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-resident company incorporated under the law of Panama. The non-resident company entered into a contract with the Oil and Natural Gas Commission of India for exploring oil in the seas which adjoined the territories of India. The area of operation was to be the seas above the continental shelf of India. The assessee carried on their employment on the oil rig operated on the seas above the continental shelf. Question arose whether the income earned by the assessee while working on the oil rig which was located above the continental shelf would be exigible to the Income Tax Act, 1961. It was held that in view of the explanation to Section 9(1)(ii) of the Income Tax Act, 1961, read with Government of Indias notification G.S.R. No. 304(E), File No. 5147/F. No. 133(79)/82 TPL dated 31.03.1983, issued under the Maritime Zones Act, 1976, the salary received by the assessees for the services rendered in India became liable to tax under the Income Tax Act. However, in the said case, on facts, it was held that the salary income earned by the assessee prior to 01.04.1983 could not be charged to tax under the provisions of the Income Tax Act, 1961 in the assessment year 1983-84 as the operation of the notification extending the provisions of Income Tax Act were not retrospective in nature. In substance, to the similar effect is the Judgment of the Bombay High Court in MCDERMOTT International Inc. v. Union of India & Others [1988 (173) ITR 155 (Bom.)].
84. We agree with the views expressed by the Bombay High Court in Pride Foramers case (supra) that in Amership Management case (supra), the High Court of Bombay was concerned with the limited question as to whether the oil rigs are vessels and if so a foreign going vessel in the light of the controversy raised in that Judgment. In Amership Management case (supra), the High Court after relying on the International Load Lines Convention, 1966 and Central Government Notifications and upon the load lines certificates, held for the purposes of the Customs Act, the expression vessel is of the widest amplitude and must be construed to include oil rigs. It was held that since the oil rigs are stationed beyond the territorial waters, supply of imported stores to the oil rigs stationed outside the territorial waters would qualify for exemption from duty under Section 86 without being required to be warehoused. The question 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 designated areas in the continental shelf and the exclusive economic zone as declared in the notifications issued by the Ministry of External Affairs on 18.07.1986 and 19.09.1996. The combined effect of these notifications is to extend the application of the Customs Act and the Customs Tariff Act to the aforesaid areas declared as designated areas under the Maritime Zones Act, 1976. The further effect of these notifications is that the designated areas of the continental shelf and the exclusive economic zone become a part of the territory of India for limited purposes. The natural consequence of such declarations and the extension of the Customs Act and the Customs Tariff Act to these designated areas is to introduce the customs regime to such areas resulting in the levy and collection of customs duties on goods imported into these areas as if these areas are a part of the territory of India. In these circumstances, the definition of India as given in Section 2(27) of the Customs Act gets extended by these provisions to cover areas declared as designated areas beyond the territorial waters and located the continental shelf and the exclusive economic zone of India. If one reads the Customs Act without reading the Maritime Zones Act, 1976, then the oil rig located in the notified areas/designated areas constitute place outside India. On the other hand, the very purpose of Sections 5, 6 and 7 of the Maritime Zones Act, 1976 is to declare an area of the contiguous zone/continental shelf/exclusive economic zone as a designated area so that exploration, exploitation and protection of resources belonging to India could be carried out. Under the said Act, the Central Government can create artificial island, offshore terminals, etc. By the said Act, customs and other fiscal enactments have been extended. Therefore, the object is very clear that the revenue generated from exploration and exploitation should accrue to the coastal State viz. India. As stated above, the area of exclusive economic zone/continental shelf, where the oil rigs are stationed (which of course is outside territorial waters) is deemed to be a part of the territory of India under the Central Government notifications issued pursuant to the provisions of the Maritime Zones Act, 1976. The supply of imported spares or goods or equipments to the rigs by a ship will attract import duty and the ship employed 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 longer res integra. This Court in Gramophone Company of India Ltd. v. Birendra Bahadur case [(1984) 2 SCC 534] has held that even in the absence of municipal law, the treaties/conventions can be looked into and enforced if they are not in conflict with the municipal law. It was further held that the same may not be looked into but can also be used to interpret municipal laws so as to bring them in consonance with international law.
88. However, in the event where they do not 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 Court held 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. National courts being organs of the National State and not organs of international law must perforce apply national law if international law conflicts with it. But the Courts are under an obligation within legitimate limits, to so interpret the Municipal Statute as to avoid confrontation with the comity of Nations or the well established principles of International law. But if conflict is inevitable, the latter must yield.
89. In Vishaka & others v. State of Rajasthan & others [(1997) 6 SCC 241], this Court considered the question as to what would be the position in law if there was no law for effective enforcement. It was held as under: -
...The international conventions and norms are to be read into them in the absence of enacted domestic law occupying the field when there is no inconsistency between them. It is now an accepted rule of judicial construction that regard must be had to international conventions and norms for construing domestic law when there is no inconsistency between them
90. Our municipal law, i.e., Maritime Zones Act, 1976 is not in conflict with the international 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 which would be deemed to be a part of the territory of India though the goods have left the territorial waters, the same would be exigible to levy of duty when they are taken and consumed within the deemed territory of India. There would be no customs duty or any other duty levied while the goods are in transit to the deemed territory of India by any other country although they have gone out of the territorial waters of India. 6.8. From the above decision of the honble apex Court, especially the underlined portions, it is clear that the Customs Act, 1962 and the Customs Tariff act, 1975 extends to the Continental Shelf Life and Exclusive Economic Zone of India as notified in the 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.
6.9. In Burmah Shell Oil Storage and ... vs. The Commercial Tax Officer [AIR 1961 SC 315] a 5 member bench of the honble Supreme Court examined the concept of export and held as follows:
36. It means, therefore, that while all exports involve a taking out of the country, all goods taken out of the country cannot be said to be exported. The test is that the goods must have a foreign destination where they can be said to be imported. It matters not that there is no valuable consideration from the receiver at the destination end.. The crucial fact is the sending of the goods to a foreign destination where they would be received as imports. The two notions of export and import, thus, go in pairs.
The same view was reiterated by the honble apex Court in State of Kerala vs. The Cochin Coal Company [1961 AIR 408]. If we apply this ratio to the facts of the case before us, it can be easily seen that there is no foreign destinations for the line pipes which were laid between two areas notified as part of India. It cannot be, therefore, said that, the pipelines were received as imports in the non-designated area. In other words, there is no export of line pipes in non-designated area. Hence, they are liable to duty in India as imports.

7. 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. 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 in India. Customs duty is a 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 confirmed in the impugned order is clearly sustainable in law. As regards the imposition of penalty of ` 3 crores on the appellant, since the matter relates to interpretation of law, such an imposition of penalty is not warranted and accordingly, we set aside the same.

9. But for the above modification, the impugned order is upheld and the appeal is rejected.

(Pronounced in Court on 12/09/2014) (Ashok Jindal) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 32