Section 9 of IGST Act, 2017: Supplies in Territorial Waters Explained
Understanding the provisions of the Integrated Goods and Services Tax (IGST) Act, 2017 is important for businesses involved in interstate transactions, imports, exports, shipping, offshore activities, and other supplies connected with different locations in India. One provision that often creates confusion is Section 9 of the IGST Act, 2017.
Section 9 of the IGST Act deals with supplies in territorial waters. The provision establishes a legal rule for determining the location of a supplier or the place of supply when that location falls within India's territorial waters. Under Section 9, the relevant location is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
This provision is particularly relevant where goods or services are supplied in areas that are located offshore but are legally connected with India's coastal States or Union territories for GST purposes.
What Is Section 9 of the IGST Act?
Section 9 of the Integrated Goods and Services Tax Act, 2017 is titled "Supplies in territorial waters." It contains a deeming provision that determines the relevant State or Union territory when the location of the supplier or the place of supply is in territorial waters.
In simple terms, if a supplier or place of supply is situated in territorial waters, the law does not leave the location undefined. Instead, it connects that location to the coastal State or Union territory nearest to the appropriate baseline.
The provision has two specific situations:
- Where the location of the supplier is in territorial waters.
- Where the place of supply is in territorial waters.
For both situations, the relevant location is deemed to be the coastal State or Union territory where the nearest point of the appropriate baseline is located.
Text and Meaning of Section 9 of IGST Act
Section 9 provides that, notwithstanding anything contained in the IGST Act:
- Where the location of the supplier is in territorial waters, the supplier's location is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
- Where the place of supply is in territorial waters, the place of supply is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
The official text of the IGST Act uses this deeming mechanism specifically for the purposes of the Act.
What Are Territorial Waters?
Territorial waters are maritime areas adjacent to a country's coast over which the country exercises sovereignty subject to applicable international and domestic law.
From a GST perspective, the important point is that a transaction can sometimes take place at an offshore location rather than at an easily identifiable location on land. This can create a question about which State or Union territory should be considered relevant for GST purposes.
Section 9 addresses this issue by connecting territorial-water locations with the nearest coastal State or Union territory based on the appropriate baseline.
This makes it possible to apply the location-based provisions of the IGST Act even when the relevant activity occurs in territorial waters.
Why Was Section 9 of the IGST Act Introduced?
GST is a destination-based tax, and determining the location of a supply is an important part of deciding how the tax law applies to a transaction.
For ordinary transactions, the supplier's location and place of supply can generally be identified using an address, registered place of business, delivery location, or another legally prescribed location.
Offshore transactions can be different.
A vessel, offshore installation, or other activity may be physically located in territorial waters rather than within the geographical boundaries of a State on land. Without a specific rule, determining the relevant State or Union territory could become complicated.
Section 9 provides a statutory mechanism to address this issue. Rather than treating the territorial-water location as having no State or Union territory connection, the law deems it to be connected to the coastal State or Union territory where the nearest point of the appropriate baseline is located.
How Does Section 9 Work?
The operation of Section 9 can be understood through three basic steps.
Step 1: Identify Whether the Relevant Location Is in Territorial Waters
First, determine whether the location of the supplier or the place of supply falls within territorial waters.
If neither relevant location is in territorial waters, Section 9 generally does not need to be applied merely because the transaction is connected with maritime activities.
Step 2: Identify the Appropriate Baseline
If the relevant location is in territorial waters, the next step is to identify the appropriate baseline and determine the nearest point on that baseline.
The baseline is important because Section 9 uses it as the geographical reference point for determining the relevant coastal State or Union territory.
Step 3: Identify the Coastal State or Union Territory
The location is then deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
This deemed location can then be used for applying the relevant provisions of the IGST Act.
Simple Example of Section 9 of IGST Act
Consider an offshore installation located in territorial waters near the coast of Gujarat.
Suppose the nearest point of the appropriate baseline is located in Gujarat.
For purposes of the IGST Act, Section 9 can deem the relevant territorial-water location to be in Gujarat.
The same principle applies if the relevant territorial-water location is connected to another coastal State or Union territory. The determining factor is the coastal State or Union territory where the nearest point of the appropriate baseline is located.
Example: Supplier Located in Territorial Waters
Suppose a supplier operates from an offshore facility located in territorial waters. The supplier's relevant location is therefore not an ordinary land-based address.
If Section 9 applies, the location of the supplier is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
This deemed location can then be considered while applying other relevant provisions of the IGST Act.
Example: Place of Supply Located in Territorial Waters
Consider another situation where the supplier's location is on land, but the relevant place of supply is in territorial waters.
Section 9 addresses this situation as well. The place of supply is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
Therefore, Section 9 is not restricted only to determining the supplier's location. It specifically covers both the location of the supplier and the place of supply.
Section 9 of IGST Act vs Section 9 of CGST Act
One of the most common sources of confusion is the fact that both the CGST Act and the IGST Act contain a Section 9, but they deal with completely different subjects.
| Particular | Section 9 of IGST Act | Section 9 of CGST Act |
|---|---|---|
| Subject | Supplies in territorial waters | Levy and collection of central tax |
| Primary purpose | Determines deemed location for territorial-water situations | Provides for levy of central GST on intra-State supplies, subject to the Act |
| Relevant area | Territorial waters | Intra-State taxable supplies generally |
| Common confusion | Sometimes confused with CGST Section 9 | Sometimes confused with IGST Section 9 |
Therefore, when someone asks about "Section 9 GST," it is important to identify whether they mean Section 9 of the CGST Act or Section 9 of the IGST Act.
Is Section 9 of IGST Related to IGST Tax Rates?
No. Section 9 of the IGST Act is not primarily a provision specifying an IGST rate.
Its purpose is to determine the deemed location when the supplier's location or place of supply is in territorial waters.
The actual tax treatment of a particular transaction depends on the applicable provisions of the GST law, including provisions concerning the nature of supply, place of supply, applicable tax rate, exemptions, and other relevant rules.
Section 9 and Place of Supply
The concept of place of supply is central to the IGST framework.
The IGST Act contains separate provisions for determining the place of supply of goods and services. Sections 10 and 11, for example, deal with specified situations involving the place of supply of goods, while other provisions address services and imports or exports.
Section 9 complements this framework by establishing a rule for situations where the relevant location is in territorial waters.
Therefore, Section 9 should not normally be read in isolation when analysing an actual GST transaction. The applicable place-of-supply provisions and the provisions determining whether a supply is inter-State or intra-State may also need to be considered.
Why Is the Appropriate Baseline Important?
The phrase "appropriate baseline" is important because Section 9 does not simply say that every territorial-water supply belongs to the nearest State by general geographical proximity.
Instead, the statutory test refers specifically to the coastal State or Union territory where the nearest point of the appropriate baseline is located.
Therefore, businesses dealing with offshore transactions should not rely only on an informal assessment such as "the installation is closest to this State." The relevant legal and geographical facts should be verified before determining the GST treatment.
Section 9 of IGST Act for Offshore Businesses
Section 9 can be particularly relevant for businesses involved in offshore and maritime activities.
Examples of industries or activities that may require careful consideration include:
- Offshore oil and gas activities
- Marine construction
- Offshore engineering
- Shipping-related services
- Maintenance of offshore installations
- Supply of goods to offshore locations
- Equipment installation and maintenance
- Marine logistics
- Technical services connected with offshore operations
However, the applicability of Section 9 depends on the specific facts and the relevant provisions of GST law. Not every transaction involving a vessel or maritime business automatically falls under Section 9.
Does Section 9 Apply to Every Transaction at Sea?
No.
The mere fact that a business is involved in shipping or maritime activity does not automatically mean that Section 9 determines the GST treatment of every transaction.
The provision specifically addresses situations where the location of the supplier or the place of supply is in territorial waters.
Other GST provisions may apply depending on whether the transaction involves goods or services, imports, exports, interstate supplies, vessels, or other circumstances.
Therefore, businesses should examine the complete transaction rather than applying Section 9 automatically.
Section 9 and Inter-State Supply
IGST generally applies to inter-State supplies, while CGST and the applicable State or Union territory tax apply to intra-State supplies, subject to the provisions of GST law.
CBIC explains that IGST is the tax applicable to inter-State supplies of goods and services under the GST framework.
Section 9 itself does not simply state that every territorial-water supply is an inter-State supply. Instead, it establishes the deemed State or Union territory location.
Once the relevant location is determined, the other applicable provisions of the IGST Act can be examined to determine the nature and tax treatment of the supply.
Section 9 and GST Compliance
Businesses dealing with territorial-water transactions should maintain appropriate documentation supporting the location of the supplier, place of supply, nature of the transaction, and relevant geographical information.
Depending on the transaction, relevant records may include:
- Contracts and purchase orders
- Tax invoices
- Shipping documents
- Vessel or offshore installation details
- Location information
- Service agreements
- Delivery documents
- Supporting technical or operational records
- GST registration information
- Relevant correspondence concerning the place of supply
Maintaining appropriate documentation can help a business explain the basis on which it determined the GST treatment of a transaction.
Common Mistakes While Understanding Section 9
1. Confusing IGST Section 9 With CGST Section 9
This is probably the most common mistake. The two provisions deal with different subjects.
IGST Section 9 deals with territorial waters, whereas CGST Section 9 is concerned with the levy and collection of central tax.
2. Assuming Every Offshore Supply Is Automatically Inter-State
Section 9 creates a deemed location rule. It does not by itself provide that every transaction connected with territorial waters is automatically an inter-State supply.
3. Ignoring the Place-of-Supply Rules
The GST treatment of a transaction can depend heavily on the applicable place-of-supply provisions. Section 9 should therefore be read together with the other relevant provisions.
4. Determining the State Only by Visual Distance
The statutory language refers to the nearest point of the appropriate baseline. Businesses should therefore consider the legally relevant geographical basis rather than relying solely on an informal estimate of distance.
5. Applying Section 9 Without Checking the Nature of Supply
Goods and services can have different place-of-supply provisions. Import and export transactions can also have specific rules. The transaction should therefore be analysed as a whole.
How Section 9 Helps Businesses
Section 9 provides certainty for a specific geographical problem.
Without a deeming rule, businesses could face uncertainty when a supplier or place of supply is physically located in territorial waters. Section 9 provides a statutory connection to a coastal State or Union territory.
This helps businesses and tax authorities apply the relevant GST provisions to transactions involving territorial waters.
Practical Checklist for Businesses
If your business is involved in a transaction connected with territorial waters, consider the following checklist:
- Identify the exact nature of the supply.
- Determine whether the transaction involves goods, services, or both.
- Identify the location of the supplier.
- Determine the applicable place-of-supply provision.
- Check whether the relevant location is in territorial waters.
- If Section 9 applies, identify the appropriate baseline.
- Determine the nearest point of the appropriate baseline.
- Identify the relevant coastal State or Union territory.
- Determine whether the transaction is inter-State or intra-State under the applicable provisions.
- Apply the appropriate GST treatment.
- Maintain documentation supporting the determination.
Frequently Asked Questions About Section 9 of IGST Act
What is Section 9 of the IGST Act?
Section 9 of the IGST Act, 2017 deals with supplies in territorial waters. It provides that where the location of the supplier or the place of supply is in territorial waters, that location is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
What does Section 9 of IGST Act mean in simple words?
In simple terms, Section 9 provides a method for assigning a territorial-water location to a coastal State or Union territory for purposes of the IGST Act.
Does Section 9 of IGST Act deal with territorial waters?
Yes. Territorial waters are the specific subject of Section 9 of the IGST Act.
Is Section 9 of IGST Act the same as Section 9 of CGST Act?
No. Section 9 of the IGST Act concerns supplies in territorial waters, while Section 9 of the CGST Act deals with the levy and collection of central tax.
What is the appropriate baseline under Section 9?
Section 9 uses the nearest point of the appropriate baseline as the reference for determining the coastal State or Union territory to which the territorial-water location is deemed to belong.
Does Section 9 automatically make a supply an inter-State supply?
Not by itself. Section 9 establishes the relevant deemed location. The applicable provisions for determining whether a supply is inter-State or intra-State must also be considered.
Does Section 9 apply to services?
The wording of Section 9 refers to the location of the supplier and the place of supply. Its application must therefore be considered alongside the relevant provisions of the IGST Act governing the particular transaction, including the applicable place-of-supply rules.
Does Section 9 apply to goods?
Section 9 can be relevant where the location of the supplier or place of supply is in territorial waters. The specific GST treatment of a supply of goods must be determined by applying Section 9 along with the other relevant provisions of the IGST Act.
Why is Section 9 important for offshore transactions?
It provides a statutory method for identifying the relevant coastal State or Union territory when the supplier's location or place of supply is in territorial waters.
Can businesses rely only on Section 9 to determine GST?
No. Section 9 addresses a specific location issue. Businesses should also consider the applicable provisions relating to the nature of supply, place of supply, inter-State or intra-State classification, tax rate, exemptions, invoicing, and other compliance requirements.
Section 9 of IGST Act: Key Takeaways
- Section 9 of the IGST Act, 2017 deals with supplies in territorial waters.
- It covers situations where the location of the supplier is in territorial waters.
- It also covers situations where the place of supply is in territorial waters.
- The relevant location is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
- Section 9 should not be confused with Section 9 of the CGST Act.
- Section 9 establishes a deemed location; it does not independently determine every aspect of the tax treatment.
- Other IGST provisions, particularly applicable place-of-supply provisions, may need to be considered.
- Businesses involved in offshore transactions should maintain appropriate supporting documentation.
Conclusion
Section 9 of the IGST Act, 2017 is a specific provision designed to address the GST treatment of locations in territorial waters. It provides that where the location of the supplier or the place of supply is in territorial waters, that location is deemed to be in the coastal State or Union territory where the nearest point of the appropriate baseline is located.
The provision is important because GST requires the location of a transaction to be determined under the applicable legal framework. Territorial-water transactions can present a unique geographical issue, and Section 9 provides a statutory solution.
For businesses, the key is not to apply Section 9 in isolation. The nature of the supply, place-of-supply rules, inter-State or intra-State classification, applicable tax provisions, and supporting documentation should all be considered before determining the GST treatment of an actual transaction.
If a transaction involves offshore installations, vessels, marine services, or other territorial-water activities, professional GST advice may be appropriate because the final tax treatment can depend on the specific facts and applicable provisions in force at the time of the transaction.
