All these years we have learnt that any transaction outside the taxable jurisdiction is not put to tax. On this very logic the high seas sale of goods were never subject of taxation either in Customs law or of sale of goods Act of respective state. This age old rule is getting changed in GST as IGST law in section 7(2) prescribes that supply of goods imported into territory of India before it crosses the customs frontiers of India shall be treated as supply of goods in the course of inter state trade or commerce. However, it is not coming out of the provisions of GST law as to how this transaction will be taxed? Who will charge? who will pay? what would happen at the time of custom clearance of such goods? These questions have been bothering me since long. In the present article, I have attempted to analyse the provisions of CGST Act and IGST Act, 2017 to find the answers of all the related questions in this regard.

Nature of high seas supply of goods

High seas supply of goods mean that the person who imports the goods from out side India sells the goods in the course of transportation of such goods into India. Example : A orders to B of Japan to supply him 1000 tons of steel. B of Japan ships 1000 tons of steel to A of India and sends the invoice and documents of title like shipping bill and bill of lading to A of India. When the goods are in transportation from Japan to India, A supplies these 1000 tons of steel to C of India by transfer of shipping bill and bill of lading. C finally files the bill of entry of such goods and clears such goods from customs in India.

IGST Act in its section 7(2) provides that the transaction between A and C of India will be considered as an inter state transaction of supply of 1000 tones of steel and thus would be chargeable to IGST under the Act. C pays the tax on such steel to A who deposits it. C files the bill of entry with customs and at the time of clearance of goods from customs, again  C will be made liable to pay IGST. Thus C would end up paying IGST twice. This situation can not be imagined in GST.

Law regarding sale during transportation in India.

The similar transactions take place in India also in which case goods are shipped to one and billed to another. Taking our example further B, the supplier on the instructions of A, the recipient supplies goods to C and bills to A. The law regarding this situation has been provided in Section 10(1)(b) as follows :

(b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person;

The transactions of this kind effectively consists following two transactions of supply of goods.

(a) Supply of goods by B to A. (B issues invoice to A.)

(b) Supply of goods by A to C. (A issues invoice to C.)

Considering the nature of transaction as inter state or intra state on the basis of place of supply of goods law as provided in section 10  of IGST Act. And IGST Act in this regard in 1(b) provides that B in this case will not consider the place where the movement of goods terminate for delivery rather would consider the principal place of business of A for determination of intra state or inter state. A while issuing invoice to C will consider his location vis a vis the place where the movement of goods terminate for the purpose of delivery to C. 

Recipient under GST

The term ‘recipient’ has been defined in Section 2 (93) of CGST Act, 2017 as under :-

(93) “recipient” of supply of goods or services or both, means—

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,

and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;

Thus, in the case of transaction of High seas sale, there would be two transactions of supply.

(a) Supply of goods from B (Supplier) to A (recipient)

(b) Supply of goods from A (Supplier) to C (recipient)

The tax on first transaction needs to be paid by A and on second transaction needs to be paid by C. C cannot be considered as recipient of supplier B rather is recipient of supplier A. But IGST on imported goods would be charged at the time of charging of customs duty, it would effectively charged to C who files the bill of entry for custom clearance of such goods.

In this case unless and until the change is brought in Customs provisions in line with the “Bill to and Ship to” provisions, it would mean one person i.e C paying IGST twice, which could never be the intention of GST law.

I call upon the collective wisdom of readers to help me in untangling this knot for the benefit of all of us.