There are 195 countries in the world, a majority of countries and territories border a sea or an ocean. These include almost all of the biggest countries which have territories on the 4 largest ocean basins – the Pacific Ocean, Atlantic sea, Indian Ocean, and the Arctic Ocean. these have served as important zones for the movement of people, merchandise trade, shipping, and communication. The colonization of India by the Portuguese, French, and British happened by these sea routes. In the new age, this trade across oceans offers several advantages and also accrues tax repercussions. here, we deal exclusively with sales concluded over High Sea Sales and also assess their tax treatment under the Goods and Services Act.
1. Meaning of High Sea Sales
2. The legal status of HSS
3. How is a high sea sales agreement different from an import agreement?
4. Is there any limit on the number of times a high sea sales transaction can be concluded?
5. Documents required for an HSS transaction
6. High Sea Sales and therefore the Applicability of GST
In a regular overseas transaction, a buyer agrees to import a particular consignment of goods from another country. On this, tax is payable when the goods reach the buyer’s country. However, sometimes a buyer may sell his consignment to another person while it is still in transit, to a buyer in a 3rd country. Thus, goods do not physically reach the country of the real buyer and are re-routed midway.
This arrangement is also an HSS transaction. For e.g, a buyer in India contacts a jewellery merchant in the USA for importing jewellery to India. While this consignment is on the way, the Indian buyer sells this consignment to a buyer in Singapore. This is a high sea sales, without the goods or products reaching India. An essential requirement is that the agreement for high sea sales is signed after dispatch of goods or products from the origin and before they arrived at the destination.
The legal status of HSS
In a typical high sea sales transaction, more than 2 parties will involve. A person sending from the country of origin, the intermediate seller, and the final buyer of the goods or products. In a high sea sales transaction, it is the original consignee – who is named in the Bill of Lading who assigns the consignment in favour of another person. This sale is concluded after the goods have left their port of loading in another country but before the goods or products have reached the port of discharge in India. on concluding the HSS agreement, the bill of lading should be endorsed in favour of the buyer or customer.
How is a high sea sales agreement different from an import agreement?
In the case of an import, the goods or products 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 or products and acknowledges his ownership over the goods. However, in an HSS transaction, the original importer assigns or sells the consignment to another buyer. Thus, unlike regular imports – goods don’t enter the territory of the country of the assignor. The ownership of the goods or products also goes to the final buyer. Bringing goods into the country by way of import also attracts customs and GST, whereas these might not be applicable if the goods are directly sold while at sea to a buyer in a different country.
Is there any limit on the number of times a high sea sales transaction can be concluded?
No, there’s virtually no legal limitation on the times a high sea sales agreement may be done while the goods are still in transit. However, for each such sale concluded, GST will have to be paid.
Documents required for a high sea sales transaction
1. Commercial invoice
This is the sales invoice for the transaction. Such a commercial invoice under high sea sale must be within the local currency of the importing country, and not in foreign currency. This invoice must mention quantities of the items or things imported alongside their rates.
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2. 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 or products.
3. Consignee copy of Bill of Lading
A Bill of Lading is a very important document showing ownership and title over the goods or products. A consignee is a person who originally initiates the transaction from the country of origin of the goods or products. This copy of the bill of lading of the consignee is essential or important to demonstrate the passing of ownership of goods to a 3rd party on the high seas.
4. Certificate of Origin
This certificate provides information on the origin-destination of the goods or products. It serves many important purposes for calculating duties, certifying the quality, standards, etc that a country may have followed. You need to attach this certificate of origin form to the high sea sales invoice.
5. Import invoice
The import invoice reflects the original or initial agreement, concluded between the consignee and therefore the seller located in the initial country of export. This is different from the High Sea Sales invoice as the intermediate seller on high seas may alter the prices of the goods. It is essential to note that the import invoice will endorse by the high sea seller in favour of the buyer.
6. Insurance certificate
The original buyer of insurance for the goods or products for import may also assign the insurance in favour of the new buyer purchaser over high seas.
HSS and the Applicability of GST
Whether each successive transfer of goods Or products over high seas attracts GST
Until 2017, a lot of confusion prevailed over whether every time a sale takes place over high seas, GST would have to be paid. According to the rules under the GST and the Customs Tariffs Act, 1975, says the clarification by the Central Board of Excise and Customs. Imports will attract(IGST) only once when the import declarations file before the customs authorities for customs clearance purposes. Thus, only the goods or products will receive for the final time by the last importer who brings the goods into the Indian Territory, IGST can pay the final price of the item.
Scenario when IGST will need to be paid
Section 7 of the GST Act defines, a “supply” becomes taxable in India when goods enter the territory of India. just In case, the goods or products 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] goods and service tax will have payment. Moreover, if the high sea sales conclude by an intermediary in India with a last or final buyer who is also in India, the final buyer would be liable to pay IGST.
The final or last buyer must have all important documents evidencing high sea sales. They’re the original import invoice, the high sea sales agreement, the new invoice. bill of lading, Bill of entry (required for customs clearance after the goods or products have reached India), certificate of origin, etc.
The availing input tax credit of IGST paid
Since the first or primary buyer of the goods or products pays no IGST or customs tax in India, there is no input credit on the tax. the final buyer or purchaser who pays IGST can avail of the advantage of the input tax credit. It is on the final price of the goods or products.
Given the different advantages in terms of taxation, saving of costs, fuel. Add. transportation, and time in concluding high sea sales, it’s an undeniably profitable trade. In recent clarifications by the tax, departments have highlighted that there would no tax liability. Tax liability accruing under [GST] Goods and service tax 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 or last importer. This brings the goods into the territory of India and would be liable to pay domestic taxes such as IGST.