Sailing Through Tax Waters: GST on High Sea Sales clarified
Introduction: When Trade Meets Tide
In the complex world of indirect taxation, where even a sneeze can invite compliance nightmares, there’s one transaction that sails smoothly over legal waters-literally. Welcome to the world of High Sea Sales (HSS), where goods are sold mid-transit, before docking at Indian shores.
Imagine this: You’re an importer, and before the goods you ordered even say hello to Indian Customs, you’ve already found a buyer and sold them. That’s High Sea Sales. Sounds like a taxman’s horror story? Well, not quite-unless you ignore the fine print of GST law.
Before we go any further:
"Why did the importer break up with his shipment mid-sea?
Because he found someone else who paid a higher CIF-value!"
What Exactly Is High Sea Sales?
High Sea Sales is the mid-ocean romance between buyers and sellers that happens after goods are shipped from a foreign port but before they hit Indian customs territory. Legally, this is called a sale in the course of import and has special treatment under Indian tax laws.
A typical example: Mr. A in India buys goods from Japan and sells them to Mr. B while the goods are still sailing. Mr. B clears them once they reach India. This transaction is considered a
High Sea Sale (HSS).
Under the Customs Act, 1962, the "customs frontiers of India" refers to the area within any customs station (port, airport, or land station). If the goods haven’t crossed these frontiers, they’re still in the high seas-figuratively and legally.
Regular Import vs. High Sea Sale – Who Does What?
|
Feature |
Regular Import |
High Sea Sale |
| Buyer | Imports & clears goods | Final buyer clears goods |
| Timing of Sale | After clearance | Before clearance |
| Customs Duty Payment | By original importer | By final buyer |
| GST Implication | IGST on import | IGST on final import only |
What did the customs officer say to the High Sea Sale buyer?
"You're the real 'captain' now-pay the IGST and sail away."
Pre-GST Position: A Tax-Free Cruise
In the good old pre-GST days (remember them?), High Sea Sales were comfortably tax-exempt. The Central Sales Tax Act, 1956 (CST Act), under Section 5(2), deemed that any transfer of goods before crossing customs frontiers was in the course of import and hence untaxable by states.
This constitutional buffer was reinforced by Article 286 of the Indian Constitution, which bars states from taxing import/export transactions. That meant no VAT, no CST, no Excise, and definitely no ‘surprise tax visits’.
Post-GST Position: A Wave of Confusion
Enter GST-the bold new tax regime promising "One Nation, One Tax". But as usual, the devil was in the interpretation. When GST rolled out, there was initial panic about whether High Sea Sales would attract GST twice-once during the transaction and again during import.
Let’s break it down:
States that:
"Supply of goods imported into India, till they cross the customs frontiers, shall be deemed to be inter-State supply."
That had everyone gasping-was GST applicable at the High Sea Sale stage? Technically yes, but practically… wait for it.
Luckily, Schedule III came in as the unsung hero, stating:
"Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after goods have been dispatched from port of origin but before clearance for home consumption" is not a supply.
This meant that although it looked like supply, smelled like supply, and sailed like supply-it wasn’t one under GST!
The Circular That Saved the Day (And Prevented Heart Attacks)
To resolve the rising confusion (and cortisol levels), the CBIC issued Circular No. 33/2017-Customs, dated 01.08.2017.
Key Clarifications:
1. High Sea Sales are outside the scope of GST at the transaction stage.
2. IGST is payable only once, by the final buyer at the time of importation.
3. Value for IGST will include:
CIF Value (Cost + Insurance + Freight)
2% markup (standard HSS margin), OR
Actual transaction value, whichever is higher.
" Why did the High Sea Sale buyer carry an umbrella to customs?
Because he heard he might face a GST storm!"
Valuation: What’s the Price Tag?
As per Circular No. 32/2004-Cus and reaffirmed under GST:
Transaction Value = CIF + 2% (or actual markup, whichever higher)
This becomes the assessable value for levying IGST when the final buyer files the Bill of Entry during customs clearance.
So if CIF value = Rs.10,00,000
Then IGST = 18% on Rs.10,20,000 (assuming 2% markup)
Who Can Claim ITC?
The golden rule under GST: Input Tax Credit (ITC) follows the one who pays.
Final Buyer (Importer) – Can claim ITC on IGST paid at customs.
Original Importer – Cannot claim ITC, as he’s out of the tax loop.
This ensures the chain of credit remains intact and avoids double-dipping.
High Sea Sale Made Outside India: What Then?
If Mr. A sells to Mr. B (another foreign party), and the goods never enter India-there’s no GST implication, no customs duty, no worries.
Such offshore transactions remain outside the scope of GST.
Required Documentation – No Paper, No Sail
To ensure your High Sea Sale qualifies, you need:
1. High Sea Sale Agreement – Between original and final buyer.
2. Commercial Invoice – In home currency, not foreign.
3. Import Invoice – From the original overseas seller.
4. Certificate of Origin – Issued in exporting country.
5. Insurance Certificates – To show coverage during transit.
6. Bill of Lading – The holy grail of ownership and proof of title.
Think of these documents as your boarding pass for a GST-compliant voyage.
Legal Position Today: Smooth Sailing (Almost)
Thanks to clarity brought in by:
Schedule III of CGST Act
Section 5(1) of IGST Act read with Customs Tariff Act
…it is now well-settled that:
➔ High Sea Sales are not supply under GST
➔ Only one IGST payment at importation stage
➔ Final buyer claims ITC
➔ Customs clearance = Taxable event
But remember, this smooth sailing still depends on proper paperwork, timely documentation, and correct valuation.
Conclusion: Anchor Your Compliance, Not Your Confusion
High Sea Sales remain a valuable, legitimate route for traders who wish to optimize transactions while goods are in transit. From a GST standpoint, while early interpretations caused storms of uncertainty, later legislative and executive clarifications have provided the lighthouse traders needed.
To sum up:
No GST on High Sea Sale transaction itself (thanks to Schedule III)
IGST levied only once-on final buyer at time of import
Proper documents = smooth customs clearance
ITC goes to the final importer only
So next time your accountant looks stressed while reviewing import records, hand them this article-and maybe a life jacket too.
And remember:
Taxation is like the ocean. It looks calm, but if you don’t know the currents, you might just end up in deep compliance trouble!
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.