Budget 2018 - Customs into Uncharted Territories

February 07,2018
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Rashmi Deshpande, Associate Partner, Khaitan & Co.
Abhishek Deodhar, Associate, Khaitan & Co.

From the perspective of indirect taxes, Union Budget 2018 was rather tepid. There were no changes on the GST front but Customs front was busy with a plethora of amendments on rates as well as non-rate aspects. The increase in rate of duty on imports appears to indicate towards an adoption of protectionist policy by the Government. Nonetheless, it is a welcome move by many indigenous industries.   

Apart from the amendments in rates, there have been other intriguing changes in customs law. Section 2(28) of the Customs Act, 1962 contains the definition of ‘Indian Customs Waters’ to mean the waters extending into the sea up to the limit of contiguous zone of India as per the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (“Territorial Waters Act”). Section 5 of the Territorial Waters Act specifies that the contiguous zone is up to 24 nautical miles from the coast of India.

The Union Budget 2018 has proposed to extend this definition to the exclusive economic zone under Section 7 of the Territorial Waters Act. Section 7 specifies that the exclusive economic zone extends up to a whopping 200 nautical miles from the coast of India. From 24 to 200 nautical miles – the Budget has sought to expand the scope of Indian Customs Waters almost 10 times!

How exactly is this significant? The customs law is littered with references to Indian Customs Waters. The salient provisions are summarised below:

Sr. No.

Relevant Section

Particulars

1

Section 104

Customs officers are empowered to arrest a person under Section 132[1], Section 133[2], Section 135[3], Section 135A[4] within the Indian Customs Waters

2

Section 106

Customs officers are empowered to stop any vehicle, animal, vessel or aircraft in the Indian Customs Waters which is being used in smuggling of goods

3

Section 115(1)(a)

Any vessel which is or has been in Indian Customs Waters shall be liable for confiscation if it is constructed or altered for the purpose of concealing goods

4

Section 100

Customs officers are empowered to search any person who has landed from or is about to board any vessel within Indian Customs Waters

5

Section 111(d)

Goods smuggled into the Indian Customs Waters are liable to confiscation

In a nutshell, the powers of arrest, confiscation and search stand extended from 24 nautical miles to 200 nautical miles from the Indian coast.

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