The Gujarat Advance Ruling Authority Ruling in the case of M/s Sterlite Technologies opens the floor to a whole new debate on an issue which seemed to have been well settled. The Issue of taxability of supply of goods from a place outside India to another place outside India without such goods entering into India.” The issue involves the understanding the concept of High Sea Sales and Merchant trade transactions.


High Sea Sales

The GST Act nowhere defines High Sea Sales. As per Circular No. 33/2017- Customs dated August 1, 2017

“High Sea Sales’ is a common trade practice whereby the original importer sells the goods to a third person before the goods are entered for customs clearance.”

To elaborate a little, High Sea sales is a sale carried out by the actual consignee (i.e. the consignee shown in the Bill of Lading) to another buyer while the goods are yet on high seas or after their dispatch from the port of loading (POL) and before their arrival at the port of discharge (POD).

Now, Schedule III of the CGST Act lists down Transactions which shall be treated neither as a supply of goods nor a supply of services. Para 7 of Schedule III lists the following:

“Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.” On account of this entry in Schedule III, High Sea Sales are out of the purview of GST.

Also, Circular No. 33/2017- Customs dated August 1, 2017, lays down procedure to tax a transaction that involves High sea sales as follows:

After the High sea sale of the goods, the Customs declarations i.e. Bill of Entry etc is filed by the person who buys the goods from the original importer during the said sale.” The contract price paid by the last high sea sales buyer is applied for the purpose of Customs valuation.

Thus it can be said that High Seas sales are left outside the purview of GST and in turn the final leg of the sale of such goods (with all the additions to its value due to the high sea sales) is taxed as import of goods with levy of IGST at the time of custom clearance under sub-section (7) of section 3 of Customs Tariff Act, 1975.The importer (last buyer in the chain) is required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/commission paid etc, to establish a link between the first contracted price of the goods and the last transaction.

Merchant Trade Transaction

Again the GST Act does not define Merchant Trade Transaction. In normal trade parlance, Merchanting transaction is one which involves shipment of goods from one foreign country to another foreign country involving an Indian Intermediary. Also as per, RBI Guidelines “For a trade to be classified as merchanting trade, goods acquired shall not enter the Domestic Tariff Area.” This is the stark difference between High Sea Sales and Merchant trade transaction. While the former must be followed by ultimate import, the later must not include import.

Facts of the case

The applicant M/s Sterlite Technologies is engaged in a transaction wherein, it receives an order from the customer located outside India and as per instruction of the applicant, the foreign Vendor of the goods directly ships the goods to the customer located outside India.  The Vendor issues invoice on applicant against which payment is made in foreign currency and applicant then raises an invoice on the foreign customer and receives consideration in foreign currency. Thus goods do not physically come into India, but move from place outside India to another place outside India. The above being a case of Merchant Trade Transaction.

First issue on which ruling was sought was whether GST is payable on goods procured from vendor located outside India where the goods so purchased are not brought into India.

To the above question the Authority has the following view:

Section 5(1) IGST Act (extract) states that  “there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, …., on the value determined under section 15 of the Central Goods and Services Tax Act

Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962”.

Section 3(7) of Customs Act enables collection of integrated tax on the goods imported. Since goods so purchased are not brought into India and thus Bill of Entry/import declarations are not being filed with respect to the goods so procured, GST would not be leviable as per the combined reading of Section 5(1) first provisio and the provisions of the customs Act above and therefore GST is not payable on goods procured from vendor located outside India, where the goods so purchased are not brought into India. 

Second issue on which ruling was sought was whether GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.

To answer the above question the Authority treaded through the following process:

First, to decide whether the said transaction was covered under definition of Supply as per Section 7(1) CGST Act. Since the said transaction is for a consideration and for furtherance of business, it is well covered under the definition of Supply.

Next thing was to determine whether, the Supply was an interstate or an intrastate supply. As per Section 7(5) IGST Act Supply of goods or services or both,–

(a) when the supplier is located in India and the place of supply is outside India;

(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or

(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce”

The supply in the present case involves movement of goods and therefore as per Section 10 (1) of the IGST Act the place of supply would be “the termination for delivery to the recipient.” The goods under consideration are supplied to overseas buyers and thus the place of supply will be a place outside India, the supplier is located in India. Thus as per  Section 7 (5)(a) of the IGST Act, the transaction would be an Inter-state supply.

Lastly, it needed to be determined whether the transaction is leviable to tax under GST. As per Section 5(1) of the IGST Act, as already quoted above, IGST shall be levied on all inter-State supplies of goods or services unless it is exempted goods or Export. Now, as per Section 2(5) IGST Actexport of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India” .In the instant case, the goods are not physically available in the Indian territory and therefore, the question of taking the goods out of India does not arise. Thus, the transaction does not qualify as export of goods. Thus making the room clear for the said transaction to be covered under the ambit of Inter-state supply chargeable with IGST.


Thus the AAR has ruled that IGST shall be chargeable on the Interstate supply of goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises, located outside India, to the customer’s premises.

If we compare globally, MTT is not charged to tax. GST law also provides that MTT is outside the scope of GST going by Paragraph 7 of Schedule III of the CGST Act. 

Disclaimer: The content of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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Qualification: CA in Job / Business
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Location: New Delhi, New Delhi, IN
Member Since: 30 Jun 2020 | Total Posts: 1

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  1. gopalakrishnan says:

    What happens when we import and sell goods under High Sea , but the customer does not clear the goods but re-exports them to a third country. Is that possible to do?

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