GST Legacy

GST impact on High Sea Sales

The Arabian Sea, Bay of Bengal and Indian Ocean surround the Indian sub-continent and businesses are flourishing on ports. The nine coastal states including Gujarat, Maharashtra, Goa, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Odisha, and West Bengal, the major seaports play a significant role in the Indian economy.

Being a specific sale carried out by carrier document consignees to another buyer on high sea – this industry also had its share of changes post GST. Let’s look at the impact of GST through this article.

Customs duty was an indirect tax levied on import and export business of India. Along with customs duty on high sea sales, other indirect taxes like octroi, port charges, etc. made the business rules complex. As there was no sales tax on high sea sales, concerned authorities were enjoying tax benefit before GST.

The coastal states of India wanted GST on trading of goods within 12 marine miles offshore which created problems in finalizing the draft for integrated GST law on inter-state trade. After many meetings, the union government finally accepted the demands of the states.

The section 3 (3) of the Integrated Goods and Services Act says that any supply of goods during import till they cross Indian custom frontiers will be regarded as the supply of goods in interstate commerce or trade. In addition to this, section 4 (1) of IGST act notes that intra-state supply of goods is not included in the supply of goods that are brought to India during import. Thus, sale during import before the customs frontier of India is subjected to IGST.

The section 5 (1) of IGST Act says that the goods imported to India are subjected to IGST and collected according to:

  • The section 3 provisions of customs tariff act 1975.

  • When custom duties are applied on the said goods under the section 12 of the custom act 1962.

  • On the values that are determined under the customs tariff act.

The section 7(2) of the IGST Act mentions that the supply of goods during the import in the Indian Territory, until it crosses the Indian customs frontiers shall be counted as a supply in the Interstate trade

The intrastate goods supply will not include any goods brought in India as import till they cross the customs frontiers, as per the section 8(1) of the IGST Act

So simply putting, any sale in the course of import until it crosses the customs frontiers will have IGST applied.

To conclude, we can say that the first importer will not charge IGST on his sale to the HSS buyer but later, the HSS buyer will need to pay IGST at the time of clearing goods as per customs act. This buyer is eligible to claim IGST which he already paid to the customs authorities and this paid GST in such cases will be an addition to the basic customs duty which the buyer needs to pay to the customs authorities. Although the term ‘High Sea Sales’ is not a legal term and people commonly use it for daily conversation. In the GST context, this term should be replaced by ‘High Sea Supply’.

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