Section 1 of the Customs Act, 19621, that gives its title and extent of operation was amended in 2018 by way of Section 57 of the Finance Act, 2018.2 As a result of this amendment, the new provision3 extends the application of the Act not just to the whole of India but also to any offence or contravention thereunder committed outside India by any person.
As is evident from a plain reading of the provision, the Finance Act, 20184 aims to provide extra-territorial application to the Customs Act, 19625 by couching the amendment in words of wide import i.e. “any offence/contravention” and “any person”. In the very near future, the interpretation of “any person” by the Supreme Court will trace the contours of this far-reaching amendment.
Neither the Finance Act nor the Customs Act has defined “any person” for the purposes of this amendment. The General Clauses Act, 1897 defines “person” as – it shall include any company or association or body of individuals, whether incorporated or not.6 It might be of relevance to note that this tool of interpretation i.e. looking towards generalist legislation in order to interpret a specialist provision in a tax statute, has been used in Agrawal Trading Corpn. v. Collector of Customs7 wherein the issue faced by the Court was – Whether firm is a “person” within the meaning of Section 8 of the Foreign Exchange Regulation Act (FERA), 1947.8
As far back as in 1958, the Supreme Court was faced with the issue of interpretation of “any person” as it appeared in Section 2(k) of the Industrial Disputes Act, 19479 in Workmen v. Dimakuchi Tea Estate10 and it went on to hold that any person cannot simply mean anyone and everyone in the world. It has to be interpreted in the context of the legislation itself and one has to look into the subject-matter of the Act as well as the object of the Act. In consonance with all these factors, the necessary rider or limitation has to be read into “any person” and it must include only those people that are connected with the subject-matter of industrial dispute. What brings this old judgment to the fore, is its reiteration in two recent pronouncements of the Supreme Court. In Indore Development Authority v. Manoharlal11 , which is a judgment on the topic of land acquisition, Dimakuchi12 was used to establish that phrases and words must be given the meaning that is consistent with the purpose of the Act. Furthermore, in State (NCT of Delhi) v. Union of India13, the judgment in Dimakuchi14 was noted while interpreting “any matter” as used in Article 239-AA(4)15 to define the scope of matters.
Thus, ample precedents exist across all kinds of statutes to govern judicial discretion while interpreting phrases of seemingly wide sweep and the same line of reasoning can be applied here to facilitate that “any person” must be understood as per the scheme of the Customs Act and that legislative intent while passing the Finance Act, 2018 should be of primary importance.
This was a general assessment of how the scope of provisions in various statutes is determined. Even so, more help can be sought by the principles enunciated by the Supreme Court for giving extra-territorial application to tax statutes in past.
In Electronics Corpn. of India Ltd. v. CIT16 (ECIL), constitutional validity of Section 9(1)(vii) of the Income Tax Act, 196117 was challenged on following two grounds:
(i) That it was extra-territorial in operation; and
(ii) that nexus between the people sought to be taxed and anything done in India, was absent.
This judgment took note of Article 245(2)18 that allows Parliament to make laws with extra-territorial operation. The real problem lies with the enforcement of such a law but to the extent such an enforcement can be envisaged using the State machinery that is available, the law can very well be given an extra-territorial application.19 However,
9. The provocation for the law must be found within India itself. Such a law may have extra-territorial operation in order to subserve the object, and that object must be related to something in India. It is inconceivable that a law should be made by Parliament in India which has no relationship with anything in India.20
After spelling out a nexus requirement, the Judges referred the case to a larger Bench, but the nature of this nexus was further clarified by the five-Judge Bench in GVK Industries Ltd. v. ITO21 in the following words―
“All that would be required would be that the connection to India be real or expected to be real, and not illusory or fanciful. Whether a particular law enacted by Parliament does show such a real connection, or expected real connection, would be a mixed matter of facts and of law.”22
This judgment intended to broaden the import of “nexus” further than what was envisaged in ECIL23 because the five-Judge Bench seemed particularly concerned about a narrow understanding of the term “provocation” as enunciated in ECIL:
23. A particularly narrow reading or understanding of the words used could lead to a strict territorial nexus requirement wherein Parliament may only make laws with respect to objects or provocations – or alternately, in terms of the words we have used “aspects and causes” – that occur, arise or exist or may be expected to occur, arise or exist, solely within the territory of India, notwithstanding the fact that many extra-territorial objects or provocations may have an impact or nexus with India.24
In a nutshell, Parliament is well within its capacity to make laws which have an extra-territorial application provided there exists a real connection with cause or effect in the country as long as there is some mechanism of enforcing that law.
It can be well understood that while enforcing the Customs Act, in wake of this new amendment, transactions that have some effect on the economy of the country can be targeted by making parties to such transactions liable, even if they are situated outside the territorial limit of the country and are not Indian nationals.
Thus, in the light of these judgments and other tools available for interpretation of Section 1(2) of the Customs Act, the extra-territorial sweep of the newly amended Customs Act can be appropriately tempered to include all shady transactions attempted with the purpose of tax evasion, provided the authorities have a necessary enforcement mechanism in place.
† R.A. to Justice Sunita Agarwal, High Court of Judicature at Allahabad, graduate from National Law University, Delhi. Author can be reached at anamika.mishra3@gmail.com.
3. Customs Act, 1962, S. 1(2).
6. General Clauses Act, 1897, S. 3(42).
8. Foreign Exchange Regulation Act, 1947, S. 8.
9. Industrial Disputes Act, 1947, S. 2(k).
11. (2020) 8 SCC 129, para 121.
13. (2018) 8 SCC 501, para 236.
15. Constitution of India, Art. 239-AA(4).
17. Income Tax Act, 1961, S. 9(1)(vii).
18. Constitution of India, Art. 245(2).
19. British Columbia Electric Railway Co. Ltd. v. R., 1946 AC 527.
20. Electronics Corpn. of India Ltd. v. CIT, 1989 Supp (2) SCC 642.
22. (2011) 4 SCC 36, paras 124-127.
23. Electronics Corpn. of India Ltd. v. CIT, 1989 Supp (2) SCC 642.
24. GVK Industries Ltd. v. ITO, (2011) 4 SCC 36.
Nice read