Supplies in territorial waters

Section 9 — Supplies in territorial waters

BLOCK 2 — PRE-GST COUNTERPART / PARALLEL PROVISIONS / OPERATIVE RULES

BLOCK 3 — COMMENTARY

1. Statutory Architecture

2. Historical Context

India's territorial waters extend up to 12 nautical miles from the baseline (low-water line along the coast and straight baselines drawn under TWCSEEZ Act 1976). Constitutionally, territorial waters are part of India under Article 1(3)(c) and vested in the Union under Article 297. Maritime resources and offshore operations in territorial waters are subject to Indian tax laws.

Pre-GST, the allocation of tax revenue on supplies in territorial waters was uncertain. The CST Act and State VAT Acts did not have explicit rules for territorial-waters supplies. Service-tax operated through the Place of Provision of Services Rules 2012 which had some framework but did not clearly allocate territorial-waters supplies between Union and States.

Section 9 IGST resolves this with a single deeming rule: supplies in territorial waters are deemed to be in the coastal State or UT where the nearest point of the appropriate baseline is located. This brings territorial-waters supplies into the standard ss. 7/8 inter-State / intra-State framework, with the coastal State/UT as the deemed location.

The Constitutional foundation is GST Council recommendation operationalising the allocation principle. The Union and coastal States together agreed that territorial-waters revenue should flow to the adjoining coastal State. Section 9 codifies this allocation.

Operationally, s. 9 is most relevant for: (a) offshore oil and gas exploration / production (ONGC, Reliance, Cairn, etc.); (b) drilling-rig and support-vessel services; (c) marine fishing operations; (d) maritime transportation services within territorial waters; (e) cable laying and pipeline-installation services offshore; (f) supply of stores / spares / provisions to vessels.

3. Judicial Evolution

GVK Industries Ltd v Income Tax Officer — (2011) 4 SCC 36 [Supreme Court — 5-Judge Constitution Bench]

Brief Facts: Question was the extent of Parliament's legislative competence to tax extraterritorial events. GVK had paid fees to a Swiss consultant for services rendered abroad in connection with raising finance for an Indian power project. Question was whether such fees could be taxed under the Income-tax Act when the service was entirely rendered abroad.

Issue: Constitutional limits of extraterritorial legislation under Article 245 — whether Parliament can tax events occurring wholly outside India if there is a 'real and substantial' nexus with India.

HELD: Parliament has competence to legislate with extraterritorial operation provided there is a real and substantial nexus with India — not merely an illusory or fanciful connection. A nexus that is rationally connected to the welfare of India is sufficient. Pure extraterritoriality without nexus is impermissible.

"Parliament's competence to legislate with extraterritorial operation is conditioned on the existence of a real and substantial — and not merely fanciful — nexus with India. The nexus must be rational and connected to India's legitimate concerns."

Relevance: Constitutional anchor for cross-border place-of-supply provisions under s. 13 of the IGST Act (services where supplier or recipient is outside India) — establishes the nexus doctrine that underpins extraterritorial GST on imports of services.

Union of India v Mohit Minerals Pvt Ltd — (2022) 10 SCC 700 [Supreme Court — 3-Judge Bench (Constitution Bench questions)]

Brief Facts: Importers of coal on CIF basis were held liable under Notification Nos. 8/2017-Integrated Tax (Rate) and 10/2017-Integrated Tax (Rate) to pay IGST on ocean freight component under reverse charge under s. 5(3)/(4) of the IGST Act. Importers challenged the levy as ultra vires the charging section and contended that IGST had already been paid on CIF value (which included freight) at the time of import under s. 3(7) of the Customs Tariff Act.

Issue: Whether IGST could be levied separately on the ocean freight component of CIF imports when the entire CIF value (inclusive of freight) had suffered IGST under s. 3(7) of the Customs Tariff Act; and whether GST Council recommendations are binding on the Union and States.

HELD: Levy struck down. The Court held that the impugned notification offended the principle of 'composite supply' under s. 8 of the CGST Act because ocean freight in CIF imports is part of the composite supply of imported goods and cannot be artificially severed. Further, the GST Council's recommendations are recommendatory, not binding, on the Union and States — both Parliament and State legislatures have simultaneous legislative power under Article 246A.

"The recommendations of the GST Council are not binding on the Union and the States. The recommendations only have a persuasive value. To regard them as binding would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST."

Relevance: Foundational authority on the IGST charging section, the limits of reverse-charge notifications under s. 5(3)/(4), and the constitutional architecture of the GST Council. Repeatedly cited in RCM, place-of-supply, and composite-supply disputes.

All India Federation of Tax Practitioners v Union of India — (2007) 7 SCC 527 [Supreme Court — 3-Judge Bench]

Brief Facts: The constitutional validity of the service-tax levy on chartered accountants, cost accountants, and architects was challenged on the ground that these professions had been historically regulated by State legislation and were therefore outside Union legislative competence.

Issue: Constitutional foundation of the service-tax levy — whether 'service' can be taxed by the Union under the residuary entry (Entry 97 List I) and what is the doctrinal nature of a service-tax levy.

HELD: Service-tax upheld. The Court held that service-tax is a value-added tax on the value of services rendered, traceable to Entry 97 of List I until Entry 92C was inserted by the Constitution (88th Amendment). The economic concept of value addition through services is the doctrinal basis on which service-tax — and now GST on services — rests.

"Service-tax is a value-added tax on the commercial activity of providing services. The taxable event is the rendition of service and the levy attaches to the value addition at the point of service delivery."

Relevance: Constitutional anchor for taxation of services under GST — pre-101st-Amendment doctrinal framework that informs the place-of-supply concept under s. 12 and s. 13 of the IGST Act.

Commissioner of Income Tax v Vatika Township Pvt Ltd — (2015) 1 SCC 1 [Supreme Court — 5-Judge Constitution Bench]

Brief Facts: The Income-tax Act's surcharge provisions had been amended mid-year. Question was whether the amendment applied retrospectively to assessment years already commenced. Constitution Bench was constituted to settle conflicting two-Judge Bench rulings on the presumption of prospectivity for fiscal statutes.

Issue: Whether a fiscal statute that imposes or enhances a burden operates prospectively unless expressly or by necessary implication retrospective; and what is the standard of clarity required for retrospective imposition.

HELD: Strong presumption of prospectivity for any provision that imposes or enhances a burden. Retrospective imposition requires either an express statutory direction or a necessary implication so unmistakable that no reasonable construction can avoid it. Beneficial provisions may be construed retrospectively; burden-imposing provisions cannot.

"If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on another, it could be construed to be retrospective. The same is not true of a provision imposing a tax or otherwise creating a fresh burden — there, the presumption of prospectivity is at its strongest."

Relevance: Constitutional anchor for prospective operation of GST amendments. Decisive in every dispute over the effective date of a notification, amendment, or rule change under IGST.

Mafatlal Industries Ltd v Union of India — (1997) 5 SCC 536 [Supreme Court — 9-Judge Constitution Bench]

Brief Facts: Multiple manufacturers had paid central excise duty under protest, succeeded in challenges, and sought refund. The question arose whether the doctrine of unjust enrichment applies to indirect-tax refunds, whether refund can be denied if the burden has been passed on, and whether common-law refund claims survive the statutory refund regime.

Issue: Constitutional and doctrinal scope of refund of indirect taxes — whether unjust enrichment bars refund where burden has been passed on; whether the statutory refund mechanism is exclusive.

HELD: Constitution Bench held (i) the statutory refund mechanism under the Central Excise Act is exclusive — common-law refund claims are excluded; (ii) the doctrine of unjust enrichment applies — refund will not be granted where the assessee has passed on the burden to the ultimate consumer; (iii) the burden of proof on incidence-passing is on the claimant.

"Where the duty has been passed on to the buyer, the manufacturer is not entitled to refund. To do otherwise would be to enrich the manufacturer at the expense of the consumer — a course no principle of justice can support."

Relevance: Foundational unjust-enrichment authority that animates s. 54(8)(e) and the Consumer Welfare Fund mechanism. Decisive in every IGST refund claim including zero-rated/inverted-duty/excess-balance refunds.

4. Circulars and Notifications

Notification No. 03/2017-Integrated Tax dated 28.06.2017 — Commencement of s. 9 as part of substantive IGST provisions

s. 9 brought into force on 01.07.2017 as part of the substantive IGST regime.

Circular No. 27/01/2018-GST dated 04.01.2018 — Levy of GST on services supplied by Government and PSUs — offshore context

Clarifies that supplies in territorial waters (eg by Government / PSUs to offshore operators) are deemed in coastal State per s. 9. RCM applicability flows from standard framework once coastal-State allocation is determined.

Circular No. 80/54/2018-GST dated 31.12.2018 — Clarification on GST on supplies of goods and services for petroleum operations

Comprehensive clarification on GST treatment of supplies for petroleum exploration / production operations including offshore in territorial waters. s. 9 deeming applies; rate concessions under specific notifications for petroleum operations.

CBIC Press Release on Offshore GST dated Various — Offshore platform / drilling rig GST treatment

Operational clarifications on GST applicability to offshore platforms, drilling rigs, support vessels, and crew supply. Coastal-State allocation under s. 9 determines whether intra-State CGST+SGST or inter-State IGST applies.

Maritime Zones Notifications (various) dated Various — Baseline demarcation for coastal States

Government of India notifications under TWCSEEZ Act 1976 specifying baselines for various stretches of coast. Operative for determining 'nearest baseline point' under s. 9 — particularly important where two coastal States have overlapping near-shore claims.

5. Worked Examples

6. Practitioner Planning

• For offshore-platform clients (ONGC, Reliance, Cairn, etc.), build a master log of platform coordinates against coastal-State baselines.
• For drilling-rig service contracts, structure supplier location to optimise coastal-State allocation under s. 9.
• For supplies to offshore vessels / rigs, document GPS coordinates + nearest baseline point as part of tax-invoice records.
• For EEZ supplies (beyond 12 nm), recall s. 9 does not apply; specific EEZ-notification framework for hydrocarbon extraction applies.
• For marine fishing operations, the deemed coastal-State allocation under s. 9 simplifies the framework — generally intra-State if vessel-fisher and supplier in same coastal State.
• For maritime shipping services within territorial waters, apply s. 9 + s. 12(8) (transportation of goods) / s. 12(9) (transportation of passengers).
• For pipeline / cable laying in territorial waters, apply s. 9 + s. 12(3) (immovable property — but for movable infrastructure analysis is more complex).
• For dispute resolution on cross-State coastal allocation, maintain GPS documentation + Government baseline notifications.
• For foreign-flag vessels supplying services within territorial waters, audit s. 14 OIDAR / s. 13 cross-border POS framework alongside s. 9.
• For petroleum-operation supplies, leverage rate concessions under specific notifications (Notification No. 3/2017-Integrated Tax (Rate) for specified petroleum supplies).
• For offshore-supply audit trail, maintain — GPS coordinates, baseline distance computation, coastal-State invoice, e-way bill (where applicable), and ITC reconciliation.
• Recall that EEZ-area hydrocarbon extraction is deemed Indian territory for certain narrow purposes (notifications); confirm specific notification before applying.
• For complex multi-jurisdictional offshore operations, consider advance ruling under s. 95 CGST applied via s. 20 IGST for certainty.
• Maintain master log of all baseline-related notifications under TWCSEEZ Act 1976 for evidentiary purposes.
• Periodic review of CBIC / GST Council communications on offshore GST matters.

7. Litigation Defence

• Nearest-baseline-point defence — for cross-State coastal allocation disputes, exhibit GPS coordinates + Government baseline notifications.
• GVK Industries nexus defence — for any extraterritorial extension beyond territorial waters, invoke real-and-substantial nexus.
• Mohit Minerals defence — for any attempt to impose IGST on territorial-waters supplies beyond statutory scope, invoke composite-supply principle.
• Vatika Township prospectivity — for any retrospective change to coastal-State allocation framework, invoke prospective-operation presumption.
• Mafatlal unjust-enrichment defence — for refund disputes flowing from coastal-State mis-allocation.
• Bharti Airtel self-assessment finality — for retrospective coastal-State reclassification.
• AIFTP constitutional anchor — for any challenge to s. 9 deeming framework on constitutional grounds.
• Maneka Gandhi audi alteram partem — for adverse re-allocation without prior hearing.
• Section 19 IGST refund + re-payment — for honest mis-allocation between coastal States.
• Section 9 non-obstante defence — for any conflict with general s. 7/8 framework, s. 9 prevails as non-obstante.
• Territorial-scope defence — for supplies beyond 12 nm, exhibit Article 297 + TWCSEEZ Act 1976 limits.
• EEZ-notification defence — for hydrocarbon EEZ supplies, exhibit specific notification framework.
• Hierarchy-of-instruments defence — circulars cannot enlarge s. 9 scope.
• Foreign-flag-vessel defence — for supplies from foreign vessels in territorial waters, layered analysis with s. 9 + s. 13 + s. 14.
• Composite-supply defence — for cable / pipeline / drilling-services bundles, apply principal-supply test.
• Article 142 backstop — for systemic offshore-GST architecture issues.

8. Procedural Map — Territorial Waters Supply Classification

Step 1. Identify GPS coordinates of supply event

Platform / vessel / rig location at time of supply.

Step 2. Confirm within 12 nm territorial waters

Beyond 12 nm = outside IGST scope (subject to EEZ notifications).

Step 3. Identify nearest baseline point under TWCSEEZ Act 1976

Government notification for coastal stretch.

Step 4. Determine coastal State / UT

State whose baseline is geographically nearest.

Step 5. Apply s. 9(a) for supplier location or s. 9(b) for POS

As applicable.

Step 6. Run s. 7/8 inter-State/intra-State analysis with deemed coastal-State location

Same-State = intra; different-State = inter.

Step 7. For foreign-vessel supplies, layered analysis

s. 9 + s. 13 + s. 14 OIDAR + s. 5(3) RCM.

Step 8. For hydrocarbon EEZ supplies, check specific notifications

EEZ deemed Indian territory for limited purposes.

Step 9. Issue tax invoice with coastal-State POS

Rule 46 with deemed location.

Step 10. Maintain GPS + baseline documentation

Critical for audit defence.

Step 11. Report in GSTR-1 with coastal-State POS

POS-wise reporting Table 5A/7A or 4A/7B.

Step 12. For petroleum operations, apply rate-concession notifications

Specific concessional rates.

Step 13. For cross-State coastal allocation disputes, gather GPS evidence

Maintain documented evidence-base.

Step 14. Consider advance ruling for complex multi-jurisdictional cases

s. 95 CGST.

Step 15. Periodic review of TWCSEEZ Act baseline notifications

Updates affect allocation.

CROSS-REFERENCES

• s. 1 IGST — Commencement; s. 9 in force 01.07.2017.
• s. 2 IGST — Definitions including India and taxable territory.
• s. 5 IGST — Charging section for territorial-waters supplies.
• s. 6 IGST — Exemptions including for petroleum supplies.
• s. 7 IGST — Inter-State characterisation after deemed location.
• s. 8 IGST — Intra-State characterisation after deemed location.
• s. 10 IGST — POS for goods within territorial waters (coordinated with s. 9 deeming).
• s. 12 IGST — POS for services including transportation (s. 12(8)/(9) most relevant offshore).
• s. 13 IGST — Cross-border services from foreign vessels.
• s. 14 IGST — OIDAR (potentially applicable to digital services from offshore).
• s. 16 IGST — Zero-rated supply (for exports from territorial waters).
• s. 20 IGST — Application of CGST provisions.
• s. 1(2) CGST — Whole of India including territorial waters.
• s. 15 CGST — Value of supply.
• s. 31 CGST — Tax invoice including POS.
• s. 73 / s. 74 CGST — SCN for mis-allocation.
• Rule 46 CGST Rules — Invoice particulars.
• Constitution Article 1(3)(c) — India includes territorial waters.
• Constitution Article 297 — Vesting of territorial waters in Union.
• Territorial Waters, Continental Shelf, EEZ and Other Maritime Zones Act, 1976 — Boundary definitions.
• Customs Act 1962, s. 2(28) — India includes territorial waters.
• Notification 3/2017-Integrated Tax (Rate) — Petroleum operations rate concessions.
• Notification 8/2017-Integrated Tax (Rate) — Services rate schedule.
• Circular 27/01/2018-GST — Government PSU supplies including offshore.
• Circular 80/54/2018-GST — Petroleum operations comprehensive clarification.
• TWCSEEZ Act baseline notifications — Operative for nearest-baseline determination.