High Sea Sales – GST Applicability

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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. 

We provide the GST rate finder service. By using this service, you’ll be able to find the HSN code list with the GST rate. This finder service is also known as the HSN code  The HSN code is used to find the GST rates of goods and services.

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. 

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What are the Advantages and Disadvantages of GST?

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According to the Goods and Service Act 2017, a replacement taxation scheme, i.e., the GST, is introduced to declutter the taxation regime and curb the cascading tax effect. Under the ‘One Nation One Tax’ initiative, the govt. of India (GOI) has extended a comprehensive and unified consumption tax scheme to exchange multiple indirect taxes on goods and services. GST could be a multistage tax because it is levied on various stages of production. But, it’s also a destination-based tax scheme which means all the taxes imposed on the assembly process are going to be refunded besides the ultimate customer. GST is often levied from the consumption point, not from the origin. 

In India, there are 5 different tax slabs under the GST law: 0%, 5%, 12%, 18% and 28%. Since the GST scheme was introduced on July 01, 2017, by the 105th amendment, the first of July is well known as GST Day. there’s a GST Council consisting of finance ministers of the centre and also the states who take care of the tax rates and regulation of the GST. So with no further ado, let’s have a detailed observe the benefits and downsides of the GST.

Advantages of GST  

1. Elimination of cascading tax effect

One of the foremost prominent benefits of GST is the unification of multiple taxes under an identical roof. It eliminates the many taxes on identical products and enhances the fluidity of tax processing. Let’s understand the cascading tax effect, i.e., the “tax on tax” effect within the pre and post-GST era with an example.

2. Enhanced threshold limit

In the Pre-GST era, businesses had to pay Value Added Tax after crossing the maximum limit of Rs. 5 Lakh. Again, the number varies from one state to a different one. However, after the implementation of GST, the edge amount has been increased by 15 Lakh, and also the new threshold limit is Rs. 20 Lakh. the rise within the VAT threshold limit has come as an enormous relief for tiny and medium businesses (SMBs).

3. Minimised compliances

Earlier, there have been separate compliances for every tax. as an example, if you had to file excise returns, it had been done monthly. the businesses and LLPs need to file service tax monthly, and partnership and proprietorship should file them quarterly. Similarly, the amount of filing the worth Added Taxes was also variable for various entities. However, with the GST coming into being, taxpayers have to file returns on just one occasion.

4. Using Composition Scheme Pay GST at fixed rates.

Did you recognize that the GST includes a provision for lowering the taxes for businesses? If your annual turnover is Rs.20 lakh and Rs.75 lakh, you’ll be able to go for the Composition Scheme to minimize your taxable income. The Composition Scheme allows you to pay GST at a hard and fast rate no matter your income if you fall within the bracket mentioned above of turnover.  four basic conditions of the Composite Scheme:

The Composite Scheme is simply applicable to businesses dealing in goods, not services. However, restaurant owners can get the advantage of the scheme.

The scheme isn’t applicable to dealers who supply goods across the states and also not applicable to e-commerce dealers.

Dealers can’t collect Composite Tax from their clients or charge Input reduction (ITC).

The rates of Composite Tax are:

• 1% for traders

• 2% for manufacturers and

• 5% for restaurant owners

The Composite Tax Scheme has eased out the compliance burden and reduced the charge per unit, especially for the MSME businesses. it’s one of the foremost promising pros of GST.

5. Smooth and quick online processing

The big advantage of the new GST reign is the online filing of tax returns. you simply must visit the GST Portal, create your new account, log in, and begin filing GST returns. The interface of the portal is fairly smooth and easy. you’ll be able to file your GST on your own with basic knowledge of computers and therefore the internet. you’ll get all the main points regarding the GST jurisdictions, GST laws that you just need to fits, and every one the relevant information regarding filing the GST on the portal itself.

One of the most important beneficiaries of this new GST portal is startups. With the assistance of a web GST portal, it becomes easy to determine transparency among tax jurisdictions between State and Central governments.

6. Ease out the matter of warehousing for e-commerce and logistics companies

Before implementing GST, the logistic firms were accustomed to founding multiple warehouses within the state to waive off CST and state entry taxes. Moreover, because of the non-availability of a lot of products, the inventory was always below the optimum capacity in warehouses.

With the new GST regime in situ, logistics companies and e-commerce vendors can now find their warehouses at any location that suits their operability. it’s eliminated the unnecessary cost of warehousing for such businesses. The GST rule has also brought unorganized sectors like textile and construction under its umbrella and enhanced their accountability.

7. Takes e-commerce operators under consideration

Before GST regulations, e-commerce vendors weren’t explicitly defined under any law. They were charged variably under different taxation schemes. There was an excessive amount of confusion about these businesses as every state had separate provisions for e-commerce companies. In states like Rajasthan Kerala and West Bengal, e-commerce companies were treated as mediators and didn’t require paying VAT. In the province, they were treated as VAT compliant firms and registered their delivery vehicles for taxation.

With the new GST Scheme, these confusions are decluttered. The GST rules have defined e-commerce companies as separate entities and have extended specific provisions for them.

Disadvantages of GST

1. GST has increased the cost of operation

With the GST in place, businesses have to update their books and accounting with the latest GST-compliant software to keep their business afloat. ERP software is expensive, and it takes proper training to manage and run this software, thereby increasing the price to companies. Moreover, compliance with GST norms has drastically increased the operational cost of SMBs,  they need to hire professionals to assist them out with the GST laws.

2. Tax liability  Increased on SMBs

According to the prior scheme, the excise duty was levied only on businesses with an annual turnover of more than Rs.1.5 cr. However, now businesses with an annual turnover of more than Rs.40 lakhs must have to pay taxes under the new GST Scheme.

3. Enhance burden of compliance

Every company must register on the GST portal within the state of its operation. The entire process of registering, maintaining documents, invoices, and filing returns is tiresome. It unessential increased the burden on companies that had already been facing too many bureaucratic hurdles in India. On top of that, most states aren’t that savvy when it comes to technology, increasing the hurdles of compliances for the companies. All of these leads to enhanced difficulties for companies. especially for new businesses.

4. Penalties for non-GST-compliant firms

Every company has to register themselves with the GST portal, and if they don’t do so, they’ll have to pay penalties. It’s quite possible for MSMEs not to understand the nuances of the GST tax regime. 

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