Budget 2018 - Extra-Territoriality of Customs laws : Concept & Challenges

February 07,2018
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Mekhla Anand, Partner, Cyril Amarchand Mangaldas
Abhilasha Singh, Senior Associate

The intrinsic nature of import-export transactions is such that extra-territorial application of import-export laws appears to be a popular international trend and is followed in many countries including Australia and United States of America.

In the Indian context, the position on the extra-territorial application of Customs Act, 1962 (“Customs Act”) was settled with judicial precedents[1] holding that the provisions of Customs Act extends only to whole of India and not beyond. In line with the objectives of ‘prevention of tax evasion’ and aiming at a more compliant trade environment, the Finance Bill, 2018 proposes to extend the applicability of the Customs Act to offences and contraventions carried out outside India.

In India, the Customs Act is not the first legislation to trifle with the concept of extra territorial application. The concept of extra-territoriality finds its roots under Article 245(2) of the Constitution which states that - “No law made by Parliament shall be deemed to be invalid on the ground that it would have extraterritorial operation.” The Hon’ble Supreme Court in Electronics Corporation of India Ltd. v. C.I.T.[2], held that legislative powers of Parliament to enact laws which have provisions of having extra-territorial operation is within the competence of Parliament. But nexus with something in India or object relating to India is necessary.

In line with the said principle in mind, there are many legislations in India which have specific provisions confirming their extra-territorial jurisdiction. For instance, Section 4 of the Indian Penal Code, 1860 uses the nationality principle and extends its application to an Indian citizen, even when he is outside India.

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