2008 (4) TMI 19 - SC - Customs

Oil rigs engaged in operations in the exclusive economic zone/ continental shelf of India, falling outside the territorial waters of India, can not be held as foreign going vessels as defined by Section 2(21) of the Customs Act, 1962 and not entitled to consume imported stores thereon without payment of customs duty.

Summary

Issues Involved:
1. Whether oil rigs in the exclusive economic zone/continental shelf of India are "foreign going vessels" under Section 2(21) of the Customs Act, 1962.
2. Whether such oil rigs can consume imported stores without payment of customs duty under Section 87 of the Customs Act, 1962.

Issue-Wise Detailed Analysis:

1. Whether oil rigs in the exclusive economic zone/continental shelf of India are "foreign going vessels" under Section 2(21) of the Customs Act, 1962.

Facts and Background:
The appellants are engaged in offshore drilling operations under contracts with ONGC. Historically, they were allowed to transship stores to oil rigs without customs duty until November 1993, after which the Revenue Authorities began demanding customs duty. The appellants challenged this in the Bombay High Court, which initially ruled in their favor, recognizing oil rigs as foreign-going vessels.

Legal Provisions and Interpretations:
- Section 2(21) of the Customs Act: Defines "foreign-going vessel" to include vessels engaged in operations outside the territorial waters of India.
- Maritime Zones Act, 1976: Extends India's jurisdiction to the continental shelf and exclusive economic zone (EEZ), allowing the Central Government to apply Indian laws, including the Customs Act, to these areas.

Court's Findings:
The Court held that while oil rigs are vessels, they do not qualify as "foreign-going vessels" under Section 2(21) when operating in designated areas of the continental shelf or EEZ. This is because these areas, though beyond territorial waters, are deemed part of India for the purposes of the Customs Act due to notifications under the Maritime Zones Act, 1976.

2. Whether such oil rigs can consume imported stores without payment of customs duty under Section 87 of the Customs Act, 1962.

Legal Provisions and Interpretations:
- Section 87 of the Customs Act: Allows imported stores to be consumed on board foreign-going vessels without customs duty.
- Notifications under Maritime Zones Act, 1976: Extend the Customs Act to designated areas of the continental shelf and EEZ, making these areas part of Indian territory for customs purposes.

Court's Findings:
The Court concluded that since the designated areas are considered part of India for customs purposes, oil rigs operating there cannot be classified as foreign-going vessels. Therefore, they are not entitled to the duty-free consumption of imported stores under Section 87.

Supporting Judgments:
- Pride Foramer v. Union of India: The Bombay High Court ruled that oil rigs in designated areas are not foreign-going vessels, a decision upheld by the Supreme Court.
- Amership Management Pvt. Ltd. v. Union of India: Initially recognized oil rigs as foreign-going vessels but did not consider the impact of the Maritime Zones Act, 1976.

International Law:
The Court referenced the United Nations Convention on the Law of the Sea (UNCLOS, 1982), which supports the extension of coastal state jurisdiction to the EEZ for resource exploitation but not full sovereignty.

Conclusion:
The appeals were dismissed, affirming that oil rigs in designated areas of the continental shelf and EEZ are not foreign-going vessels and must pay customs duty on imported stores. The Court emphasized the importance of reading the Customs Act in conjunction with the Maritime Zones Act, 1976, and relevant international conventions.