GST on High Sea Sales

High Sea Sales [HSS] is a common trade practice within four corners of law whereby the original importer of goods sells the subject goods to a third person before the goods are entered for customs clearance. HSS in general understanding is a sale where importer sells the goods to another buyer after the goods are loaded on a carrier such as ship, aircraft in exporter’s country while the goods are yet on high seas or in the air or sale of the goods after their dispatch from the port/airport of export and before their arrival at the destination port/airport.

High Sea Sales from the point of view of an entity incorporated in India refers to the sale of goods which is made after the goods cross the Custom frontiers of India by way of transfer of documents of title of goods.

For example, ‘A’ located in Mumbai procures goods from vendor ‘B’ of the USA. The goods are exported from the USA; and while the goods are in transit, ‘A’ enters into a contract with ‘C’ of Nagpur, and sells these goods to ‘C’, before the goods cross the customs frontier of India. The sale of goods by ‘A’ of Mumbai to ‘C’ of Nagpur, while they are in transit is called high sea sale.

High Sea Sales under GST

After the high sea sale of the goods, the Customs declarations i.e. Bill of Entry etc is filed by the person who buys the goods from the original importer during the said sale. In the past, CBEC has issued various instructions regarding high sea sales appropriating the contract price paid by the last high sea sales buyer into the Customs valuation.

As per provisions of section 7 (2) of the IGST Act, supply of goods in the course of import into the territory of India, till they cross the Customs frontiers of India will be deemed to be a supply in the course of Interstate trade or commerce. Hence, GST would be applicable on the transaction. However, the time of levy of GST would be different for high sea sales as under.

Applicability of HSS under GST

• IGST on the imported goods is levied and collected in accordance with the Customs. Since BCD is not payable on the HSS, even IGST is not payable on HSS.

• The CGST amendment act, 2018 has amended Schedule III to include the supply of goods by the consignee to any other person, by an endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption i.e., HSS. The above amendment act has included HSS in the activities which are not to be treated as supply under GST. This amendment is effective from 01st February 2019.

• Customs duty was an indirect tax levied on import and export business of India. Along with customs duty on high sea sales, other indirect taxes like octroi, port charges, etc. made the business rules complex. As there was no sales tax on high sea sales, concerned authorities were enjoying tax benefit before GST.

• The coastal states of India wanted GST on trading of goods within 12 marine miles offshore which created problems in finalising the draft for integrated GST law on inter-state trade. After many meetings, the union government finally accepted the demands of the states.

• The section 3 (3) of the Integrated Goods and Services Act says that any supply of goods during import till they cross Indian custom frontiers will be regarded as the supply of goods in interstate commerce or trade. In addition to this, section 4 (1) of IGST act notes that intra-state supply of goods is not included in the supply of goods that are brought to India during import. Thus, sale during import before the customs frontier of India is subjected to IGST.

• The section 5 (1) of IGST Act says that the goods imported to India are subjected to IGST and collected according to:

1. The section 3 provisions of customs tariff act 1975.

2. When custom duties are applied on the said goods under section 12 of the customs act 1962.

3. On the values that are determined under the customs tariff act.

• The intrastate goods supply will not include any goods brought in India as import till they cross the customs frontiers, as per the section 8(1) of the IGST Act. So simply put, any sale in the course of import until it crosses the customs frontiers will have IGST applied.

• The first importer will not charge IGST on his sale to the HSS buyer but later, the HSS buyer will need to pay IGST at the time of clearing goods as per customs act. This buyer is eligible to claim IGST which he already paid to the customs authorities and this paid GST in such cases will be an addition to the basic customs duty which the buyer needs to pay to the customs authorities. Although the term ‘High Sea Sales’ is not a legal term and people commonly use it for daily conversation. In the GST context, this term should be replaced by ‘High Sea Supply’.

Time of Levy of GST

After detailed deliberation of GST council & number of representations made by industry, the government has decided that GST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed by last buyer of high sea sale transaction before the Customs authorities for  customs clearance purposes for the first time.

It has been clarified vide Circular No- 33/2017- Customs dated 1st August 2017, that IGST on High Sea Sales transaction on imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Custom authorities for  customs clearance purposes for the first time.

In case of high sea sales there can be 2 kinds of transaction:

1. Transaction commences outside the territory of India and are concluded also outside territory of India.

For example: A company in Germany supplies goods from Germany to another company in Sri Lanka — this is not a supply in the course of inter-state trade or commerce because it commences and concludes outside the territory of India. It would be so, even if the goods were supplied by the company in Germany from Germany to a customer incorporated in India if the goods are not ‘brought’ into India but sold in high seas to yet another company in Singapore.

In order for every supply to come within the operation of Section 7(2) of IGST Act, it requires that the resultant effect of the supply must cause the goods to enter the territory of India.

2. Transaction commences outside the territory of India but concluded by entering the territory of India.

For example: Goods have been imported from France by a company incorporated and registered in Nasik which have landed at Mumbai port but during their clearance are supplied by the Nasik company to a company in Pune, this supply continues to be in the course of inter-state trade or commerce. Even though the supplier is in Nasik and the recipient is in Pune,  the goods have not yet crossed the customs frontiers of India at the time of supply. This supply comes within the operation of Section 7(2) of IGST.

Transactions taking place before filing of bill of entry are termed as “high sea sale” transactions under common trade practice where the original importer sells the goods to a third person before the goods are entered for customs clearance. This supply is covered within definition of inter-state supply. Provisions of Section 3(12) of Customs Tariff Act, 1975 in as much as in respect of imported goods provides that all duties, taxes, cess’ etc. shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for customs clearance purposes.

High sea sale transactions, though regarded as supply in the course of inter-state trade or commerce, are not subject to levy of IGST as the supply takes place before filing of Bill of entry and IGST in case of importation of goods can be levied at the time of filing of Bill of Entry.

Nature of Supply in Case of “High Sea Sale” Transaction

As per Section 7(2) of the IGST Act, supply of goods in the course of import into the territory of India, till they cross the Customs frontiers of India shall be deemed to be a supply in the course of Interstate trade or commerce. All high seas sale transactions are covered within the definition of interstate supply.

Impact of GST in case of “high sea sale” transactions:

1. Levy of GST in case of “high seas sale” transactions has created a lot of confusion since such transactions or imports generally go through multiple buyers wherein the original importer sells the goods to a third party before the goods are entered for customs clearance.

2. This had led to doubts like whether GST would be levied in case of each of the transactions occurred in between.

3. IGST Act imposes levy only on ‘Import of Goods’ as per Customs Tariff Act, 1975, not on ‘supply of goods in the course of import into territory of India’. Integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962.

4. IGST Act nowhere defines taxation on supply of goods in the course of import into territory of India though Parliament has been authorised by virtue of article 286(2) of the Constitution of India to formulate principles for determining this levy. Since levy has not been imposed on transaction of High Sea Sales in IGST Act, tax cannot be imposed on said transactions.

5. GST Council clarification on the issue: GST council has deliberated the levy of Integrated Goods and Services Tax on high sea sales in the case of imported goods. The council has decided that IGST on high sea sale(s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.

6. IGST in case of the above transactions shall be levied and collected only at the time of importation and that is when the import declarations are filed before the Customs authorities for customs clearance purposes for the first time.

7. This happens when goods reach the last buyer in the entire chain of transactions.

8. The last buyer in the entire chain of transactions shall be liable to pay IGST and would be required to submit documents like - original invoice, high-seas-sales-contract, details of service charges/commission paid etc, to establish a link between the first contracted price of the goods and the last transaction.

9. IGST will be payable on the final amount arrived at after including all value additions accruing in each such high sale.

10. Thus, it can be concluded that GST in case of “high seas sale” transactions shall be levied only once.

11. Recently Maharashtra Authority for Advance Ruling in case of M/s. BASF India Ltd has discussed the applicability of GST on High Seas sales transactions and ruled that the supply of goods imported into the territory of India till they cross the customs frontier shall be treated as a supply of goods in the course of inter-state trade or commerce and the transaction is in the nature of inter-state supply as per Section 7(2) of the IGST Act.

Further, referring to Section 7(2) and proviso to Section 5(1) of IGST Act, 2017, the Authority held that the goods sold in a High Sea Sales transaction are in the nature of an interstate supply, and there is no levy and collection except in terms of Section 12 of the Customs Act, 1962 and Section 3 of the Customs Tariff Act, 1975. The Authority also ruled that the goods sold on High Sea Sale basis are non-taxable supply, since no tax is leviable on them till the time of their customs clearance and accordingly, be covered under the definition of ‘exempt supply’.

Various modes of high seas supply under GST