The term High Seas Sales is not defined anywhere in the
CGST or IGST Act. But according to
the commercial trade practice, High Seas Sales is a sale carried out by a
person, while the goods are still on
high seas or after their dispatch from the port of loading and before their arrival
at the port of discharge.
For example, Mr. Arun staying in Mangalore, purchases
certain goods from the USA. The dealer
in USA ships the goods, and before the goods are delivered to India, Mr. Arun
receives a sale order for the same
goods from Mr. Varun staying in Chennai. Mr. Arun makes the sale to Mr. Varun. Here, Arun has made the sale
of goods which are still on high seas, which have not yet entered India. Such
transaction is called High Seas Sales.
There is another term called as high seas exports.
Taking the same example, if Mr. Varun was a
person staying in Australia, and Arun makes the
sale to him, it is a case of high seas exports, wherein
the subsequent buyer to whom the high seas sale is made is in some other country.
As we all know, any businessman would love to increase his profits. That may be either by increasing sales or by reducing costs. In case of high seas sales, since the original buyer (Mr. Arun in the example) does not take the delivery of the goods, the cost that he may have incurred to store the goods will be saved. Also, since the original buyer does not engage in getting the goods customs cleared which is a time-consuming process, he also saves a lot of time which in turn helps him in increasing his efficiency. These are the major advantages of engaging in high seas sales.
GST in India, is applicable only when there is a supply
of goods or services. The definition of the
term ‘Supply’ can be seen in section 7 of the CGST Act, 2017. This section also
states that, any activities or
transactions mentioned in Schedule III to the CGST Act will neither be treated
as supply of goods, nor as supply of services.
And when we look into Schedule III, entry number 8 states the following activity:
In case of high seas sales, the sale is made before the goods are cleared
for home consumption.
Therefore, since the sale is made before the goods are customs cleared and are ready for home consumption, we can infer that High Seas Sales fall under
the purview of Schedule III and
therefore, they will not be treated as a supply of goods. Hence, the original
buyer (Mr. Arun) is not liable to pay IGST or
customs duty on the goods he had purchased from
USA.
Now the question arises is, who is liable to pay GST?
Since the goods have entered India, there
has been import of goods and somebody has to pay IGST. The answer to this
question is that the subsequent
buyer has to pay IGST. Subsequent buyer (Mr. Varun) will be liable to pay IGST,
on which he can also claim input tax credit.
This is the implication of GST on high seas sales.
As we all know, GST is a destination based tax. Meaning,
the recipient of the goods will have
to pay the tax. In the case of high seas sales, the recipient is the subsequent
buyer, who actually gets the goods customs cleared
and gets them ready for home consumption. Therefore, the
subsequent buyer will have to
pay IGST on such goods.
As already mentioned in the meaning, in case of High
Seas Exports, the subsequent buyer is a person
not residing in India. Therefore, the goods will be delivered directly to that
country where the sale has been taken
place (Australia in our example). Since the goods will directly go to the other country, they will never
enter India. And since they never enter India, the question of applicability of GST does not
arise.
The same has
been clarified by the Customs Department vide Circular No. 33/2017-Cus.
References
https://taxinformation.cbic.gov.in/content-page/explore-act/1000736/1000001
Nitin J Shetty & Co.
