High Sea Sales – GST Applicability

Last Updated at: May 14, 2020
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High Sea Sales – GST Applicability

Of the 195 countries in the world, a majority of countries and territories border a sea or an ocean. These include almost all of the largest countries which have territories on the four largest ocean basins – the Pacific Ocean, Atlantic Ocean, Indian Ocean, and the Arctic Ocean. Since time immemorial, these have served as important zones for movement of people, merchandise trade, shipping, and communication. The colonization of India by the Portuguese, French, and British happened via these sea routes. In the modern age, this trade across oceans offer several advantages and also accrue tax repercussions. In this post, we deal exclusively with sales concluded over high seas and also assess their tax treatment under the Goods and Services Act. 

  1. Meaning of High Sea Sales

  2. The legal status of High Sea Sales

  3. How is a high sea sales agreement different from the import agreement?

  4. Is there a limit on the number of times a high sea sales transaction can be concluded? 

  5. Documents required for a high sea sales transaction

  6. High Sea Sales and the Applicability of GST 

  7. Way Forward – Advancing profitable cross-country trade over high seas 

In a regular overseas transaction, a buyer agrees to import a certain consignment of goods from another country. On this, tax is payable when the goods reach the buyers country. However, sometimes a buyer may sell his consignment to another person while it is still in transit, to a buyer in a third country. Thus, goods do not physically reach the country of the original buyer and are re-routed midway.

This arrangement is also a high sea sales transaction. For example, a buyer in India contacts a jewelry merchant in the USA for importing jewelry to India. While this consignment is en route, the Indian buyer sells this consignment to a buyer in Singapore. This is a high sea sales, without the goods reaching India. An essential requirement is that the agreement for high sea sales is signed after dispatch of goods from the origin and before they arrived at the destination. 

The legal status of High Sea Sales

In a typical high sea sales transaction, more than two parties will involve. A person sending from the country of origin, the intermediate seller, and the final buyer of the goods. In a high sea sales transaction, it is the original consignee – who is named in the Bill of Lading (an important document for import of goods) who assigns the consignment in favor of another person. This sale is concluded after the goods have left their port of loading in another country but before the goods have reached the port of discharge in India. Thus, on concluding the high sea sales agreement, the bill of lading should be endorsed in favor of the buyer. 

How is a high sea sales agreement different from the import agreement?

In the case of an import, the goods are physically received from the port of discharge and enter the domestic territory of the country. The person filling the Bill of Lading is the buyer of the goods and acknowledges his ownership over the goods. However, in a high sea sales transaction, the original importer assigns or sells the consignment to another buyer. Thus, unlike regular import – goods do not enter the territory of the country of the assignor. The ownership of the goods also goes to the final buyer.  Bringing goods into the country by way of import also attracts customs and GST, whereas these may not be applicable if the goods are directly sold while at sea to a buyer in another country. 

Is there a limit on the number of times a high sea sales transaction can be concluded?

No, there is virtually no legal limitation on the times a high sea sales agreement may be done while the goods are still in transit. However, for every such sale concluded, GST will have to be paid. 

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Documents required for a high sea sales transaction

Commercial invoice or Sales Invoice

This is the sales invoice for the transaction. Such a commercial invoice under high sea sale must be in the local currency of the importing country, and not in foreign currency. This invoice needs to mention quantities of the items imported alongside their rates. 

High Sea Sales Agreement

A high sea sales agreement is a written transaction between the high sea sales buyer and the high sea sales seller who finally receives the goods. 

Consignee copy of Bill of Lading

A Bill of Lading serves as an important document showing ownership and title over the goods. A consignee is a person who originally initiates the transaction from the country of origin of the goods. This copy of the bill of lading of the consignee is essential to demonstrate the passing of ownership of goods to a third party on the high seas. 

Certificate of Origin

This certificate provides information on the origin-destination of the goods. It serves many important purposes for calculating duties, sanctions, certifying the quality, standards, etc that a country may have followed. You should attach this certificate of origin form to the high sea sales invoice. 

Import invoice

The import invoice reflects the original agreement, concluded between the consignee and the seller located in the initial country of export or origin. This is different from the High Sea Sales invoice (Commercial or Sales Invoice above) as the intermediate seller on high seas may alter the prices of the goods. It is important to note that the import invoice will endorse by the high sea seller in favor of the buyer. 

Insurance certificate

The original buyer of insurance for the goods for import may also assign the insurance in favor of the new buyer over high seas.  

High Sea Sales and the Applicability of GST

Whether each successive transfer of goods over high seas attracts GST

Until 2017, a lot of confusion prevailed over whether each time a sale takes place over high seas, GST would have to be paid. According to the rules under the Goods and Services Tax and the Customs Tariffs Act, 1975, says the clarification by the Central Board of Excise and Customs. Imports will attract Goods and Services Tax (IGST) only once when the import declarations file before the customs authorities for customs clearance purposes. Thus, only the goods will receive for the final time by the last importer who brings the goods into the Indian Territory, IGST will pay on the final price of the item. 

Scenario when IGST will have to be paid 

As per Section 7 of the GST Act, a “supply” becomes taxable in India when goods enter the territory of India. In case the goods reach the domestic frontiers of India, after which the agreement with a seller concludes since the goods enter the borders. This supply becomes taxable, and IGST will have payment. Moreover, if the high sea sales conclude by an intermediary in India with a final buyer who is also in India, the final buyer would be liable to pay IGST. 

The final buyer must have all important documents evidencing high sea sales. They are the original import invoice, the high sea sales agreement, the new invoice. Additionally, bill of lading, Bill of the entry (required for customs clearance after the goods have reached India), certificate of origin, etc. 

The availing input tax credit of IGST paid 

Since the first buyer of the goods pays no IGST or customs tax in India, there is no input credit on the tax. However, the final buyer who pays IGST can avail of the advantage of the input tax credit. It is on the final price of the goods. 

Way Forward – Advancing profitable cross-country trade over high seas

Given the distinct advantages in terms of taxation, saving of costs, fuel. Additionally, transportation, and time in concluding high sea sales, it is an undeniably profitable trade. The recent clarifications by the tax departments have highlighted that there would no tax liability. Tax liability accruing under GST to the intermediary seller in a high sea sales transaction. Moreover, if the goods change hands multiple times throughout their transit, it is only the final importer. This brings the goods into the territory of India who would be liable to pay domestic taxes such as IGST. 

 

 

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High Sea Sales – GST Applicability

158

Of the 195 countries in the world, a majority of countries and territories border a sea or an ocean. These include almost all of the largest countries which have territories on the four largest ocean basins – the Pacific Ocean, Atlantic Ocean, Indian Ocean, and the Arctic Ocean. Since time immemorial, these have served as important zones for movement of people, merchandise trade, shipping, and communication. The colonization of India by the Portuguese, French, and British happened via these sea routes. In the modern age, this trade across oceans offer several advantages and also accrue tax repercussions. In this post, we deal exclusively with sales concluded over high seas and also assess their tax treatment under the Goods and Services Act. 

  1. Meaning of High Sea Sales

  2. The legal status of High Sea Sales

  3. How is a high sea sales agreement different from the import agreement?

  4. Is there a limit on the number of times a high sea sales transaction can be concluded? 

  5. Documents required for a high sea sales transaction

  6. High Sea Sales and the Applicability of GST 

  7. Way Forward – Advancing profitable cross-country trade over high seas 

In a regular overseas transaction, a buyer agrees to import a certain consignment of goods from another country. On this, tax is payable when the goods reach the buyers country. However, sometimes a buyer may sell his consignment to another person while it is still in transit, to a buyer in a third country. Thus, goods do not physically reach the country of the original buyer and are re-routed midway.

This arrangement is also a high sea sales transaction. For example, a buyer in India contacts a jewelry merchant in the USA for importing jewelry to India. While this consignment is en route, the Indian buyer sells this consignment to a buyer in Singapore. This is a high sea sales, without the goods reaching India. An essential requirement is that the agreement for high sea sales is signed after dispatch of goods from the origin and before they arrived at the destination. 

The legal status of High Sea Sales

In a typical high sea sales transaction, more than two parties will involve. A person sending from the country of origin, the intermediate seller, and the final buyer of the goods. In a high sea sales transaction, it is the original consignee – who is named in the Bill of Lading (an important document for import of goods) who assigns the consignment in favor of another person. This sale is concluded after the goods have left their port of loading in another country but before the goods have reached the port of discharge in India. Thus, on concluding the high sea sales agreement, the bill of lading should be endorsed in favor of the buyer. 

How is a high sea sales agreement different from the import agreement?

In the case of an import, the goods are physically received from the port of discharge and enter the domestic territory of the country. The person filling the Bill of Lading is the buyer of the goods and acknowledges his ownership over the goods. However, in a high sea sales transaction, the original importer assigns or sells the consignment to another buyer. Thus, unlike regular import – goods do not enter the territory of the country of the assignor. The ownership of the goods also goes to the final buyer.  Bringing goods into the country by way of import also attracts customs and GST, whereas these may not be applicable if the goods are directly sold while at sea to a buyer in another country. 

Is there a limit on the number of times a high sea sales transaction can be concluded?

No, there is virtually no legal limitation on the times a high sea sales agreement may be done while the goods are still in transit. However, for every such sale concluded, GST will have to be paid. 

get free Legal Advice

Documents required for a high sea sales transaction

Commercial invoice or Sales Invoice

This is the sales invoice for the transaction. Such a commercial invoice under high sea sale must be in the local currency of the importing country, and not in foreign currency. This invoice needs to mention quantities of the items imported alongside their rates. 

High Sea Sales Agreement

A high sea sales agreement is a written transaction between the high sea sales buyer and the high sea sales seller who finally receives the goods. 

Consignee copy of Bill of Lading

A Bill of Lading serves as an important document showing ownership and title over the goods. A consignee is a person who originally initiates the transaction from the country of origin of the goods. This copy of the bill of lading of the consignee is essential to demonstrate the passing of ownership of goods to a third party on the high seas. 

Certificate of Origin

This certificate provides information on the origin-destination of the goods. It serves many important purposes for calculating duties, sanctions, certifying the quality, standards, etc that a country may have followed. You should attach this certificate of origin form to the high sea sales invoice. 

Import invoice

The import invoice reflects the original agreement, concluded between the consignee and the seller located in the initial country of export or origin. This is different from the High Sea Sales invoice (Commercial or Sales Invoice above) as the intermediate seller on high seas may alter the prices of the goods. It is important to note that the import invoice will endorse by the high sea seller in favor of the buyer. 

Insurance certificate

The original buyer of insurance for the goods for import may also assign the insurance in favor of the new buyer over high seas.  

High Sea Sales and the Applicability of GST

Whether each successive transfer of goods over high seas attracts GST

Until 2017, a lot of confusion prevailed over whether each time a sale takes place over high seas, GST would have to be paid. According to the rules under the Goods and Services Tax and the Customs Tariffs Act, 1975, says the clarification by the Central Board of Excise and Customs. Imports will attract Goods and Services Tax (IGST) only once when the import declarations file before the customs authorities for customs clearance purposes. Thus, only the goods will receive for the final time by the last importer who brings the goods into the Indian Territory, IGST will pay on the final price of the item. 

Scenario when IGST will have to be paid 

As per Section 7 of the GST Act, a “supply” becomes taxable in India when goods enter the territory of India. In case the goods reach the domestic frontiers of India, after which the agreement with a seller concludes since the goods enter the borders. This supply becomes taxable, and IGST will have payment. Moreover, if the high sea sales conclude by an intermediary in India with a final buyer who is also in India, the final buyer would be liable to pay IGST. 

The final buyer must have all important documents evidencing high sea sales. They are the original import invoice, the high sea sales agreement, the new invoice. Additionally, bill of lading, Bill of the entry (required for customs clearance after the goods have reached India), certificate of origin, etc. 

The availing input tax credit of IGST paid 

Since the first buyer of the goods pays no IGST or customs tax in India, there is no input credit on the tax. However, the final buyer who pays IGST can avail of the advantage of the input tax credit. It is on the final price of the goods. 

Way Forward – Advancing profitable cross-country trade over high seas

Given the distinct advantages in terms of taxation, saving of costs, fuel. Additionally, transportation, and time in concluding high sea sales, it is an undeniably profitable trade. The recent clarifications by the tax departments have highlighted that there would no tax liability. Tax liability accruing under GST to the intermediary seller in a high sea sales transaction. Moreover, if the goods change hands multiple times throughout their transit, it is only the final importer. This brings the goods into the territory of India who would be liable to pay domestic taxes such as IGST. 

 

 

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.