APRIL 18, 2018

By Shalini Ranjan

HIGH sea sales is a sale carried out by a Consignee (bearing documents of carriage) to another Buyer in cases where the goods sold are situated in the High Sea at the time of sale; or where the goods are between the port of origin and the destination port. In such sale, both the buyer and seller are within the country, but the goods are in-transit and the sale is completed by way of endorsement on the Bill of Lading. The goods may change multiple hands before being brought into India or re-directed to some other place. The issue is applicability of taxes on such transactions.

Goods & Services Tax are governed by the Central Goods & Services Tax Act, 2017 (CGST Act), the Integrated Goods & Services Tax Act, 2017 (IGST Act), statutes for each State and Union Territory along with relevant Rules. The CGST and IGST Act apply to whole of India and India has been defined in Section 2 (56) of the CGST Act meaning the territory of India as referred in Article I of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other etc.

Territorial waters extend to a distance of 12 nautical miles into sea from the nearest point of the baseline, the Continental Shelf extends beyond the limit of the territorial waters to a distance of 200 nautical miles from the baseline and Exclusive Economic Zone is an area adjacent to the Territorial waters, extending up to 200 nautical miles from the baseline. Thus, the taxable territory for applicability of CGST and IGST shall be India, up to 200 nautical miles.

As per Section 2(10) of the IGST Act, "import of goods" with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India.

Section 7(2) of the IGST Act provides that supply of goods imported into the territory of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce till they cross the customs frontiers of India. This would imply that supply of goods taking place in the taxable territory of India i.e. within 200 nautical miles till the goods cross the customs frontiers, shall be treated as inter-state transaction.

Circular No. 33/2017-Cus. dated 01.08.2017 has been issued by CBIC (earlier CBEC) with the intent of equating high seas transaction with inter-state transaction. It analyses high sea sale taking place multiple times, between multiple people before the goods are actually brought into India and applicability of GST on the same. At the time of import, the goods shall attract customs duty which shall also include IGST under Section 3(7) of the Customs Tariff Act, 1975.

Thus, in order to avoid double levy of IGST on the said goods i.e. under Section 7(2) of the IGST Act and Section 3(7) of the Customs Tariff Act, Circular No.33/2017-Cus. was issued stating that IGST shall be collected only once at the time of import along with customs duty i.e. under Section 3 of Customs Tariff Act when the documents are filed for clearance.

Nevertheless, it is important to understand the procedure to treat the sale of goods on high seas as 'taxable supply'. As already discussed above, supply of goods imported into the territory of India till the goods cross customs frontiers shall be inter-state transaction. If the supply takes place when the goods are in territorial waters, the place of supply shall be the closest coastal Union Territory or the State as per the provision of section 9 of the IGST Act.

It is to be noted that the clarification given in Circular No. 33/2017-Cus. is towards goods which are sold on high seas and are imported into India. A plain reading of the same, however, makes it evident that no light is shed by the said Circular on specific situations arising out of the sale of goods in the high seas wherein such goods are directed to other locations, not having crossed into the Customs frontiers of India.

The intent behind the issuance of Circular No. 33/2017-Cus. is to clarify that the point of payment of IGST on goods imported and cleared from Indian Customs shall be the clearance of the said goods. However, as has already been mentioned supra, the said Circular does not, at any place, envisage a situation wherein goods undergo a high sea sale – yet do not enter India for clearance from the customs. In short, the Circular is yet to effectively take cognizance of the taxability under GST Law of goods shipped between an Assessee (in India), a Supplier (in Country 'A') and a Recipient (in Country 'B') – wherein such goods are ordered by the Assessee from the Supplier and sent across, sans any pass–through/presence in India; to the Recipient.

Consequently, it would not be amiss to state that the clarification issued with respect to IGST applicability on high seas sales vide Circular No. 33/2017-Cus was, at best, limited.

Be that as it may, the taxability of goods sold in the high seas sans import into India was a question that was considered at length by the Hon'ble Authority for Advance Rulings, Kerala in the matter of M/s Synthite Industries Ltd . - 2018-TIOL-02-AAR-GST. In its Ruling, the Hon'ble AAR specifically brought out the fact that IGST liability in such scenarios is triggered by the occurrence of import - i.e. the goods become liable to IGST only in the event of an ‘import' having taken place. It is, thus, evident that ‘import' happens to be a pre–requisite for the levy of IGST in the sale of goods in high seas.

The Synthite Ruling has, thus, come as a timely clarification regarding the non-applicability of IGST on goods not imported into India and directed to other locations in the course of high sea sale transactions. Hence, the said Ruling should serve to end not only the uncertainty of taxpayers across the country with regard to taxability of high sea sales made outside India; but also with respect to any compliance–related obligations which would, otherwise,may have arisen.

(The views expressed are strictly personal.)