HIGH SEAS - EXEMPT SUPPLY-SALES

In the vast, geographically divided world, the 'High Seas'—those ocean areas beyond sovereign control—comprise two-thirds of the planet's surface. Since ancient times, marine(sea) transportation is absolutely central to global business and trade. It handles heavy & bulk goods. It’s the backbone of international supply chains and essential for the flow of raw materials and finished goods. About 80% (by physical weight) of such trade is transported by sea and around 70% of the value of the global trade. In Indian law, this geographical reality is translated into a sophisticated fiscal mechanism known as the High Seas Sale (HSS). Whether dealing with modern consumer goods or the 'High Five' petroleum products, the law ensures that these transactions remain free from domestic tax until they reach their final destination.

The Jurisdictional Boundary:

Indian Customs Waters: The legal reach of the Indian state into the ocean is defined by Section 2(28) of the Customs Act, 1962. 'Indian customs waters' means the waters extending into the sea up to the limit of the Exclusive Economic Zone (EEZ).Under the Maritime Zones Act, 1976, this reaches 200 Nautical Miles from the coastal baseline. A Nautical Mile is based on the Earth's coordinates (one minute of latitude).One Nautical Mile = 1.852 Kilometers. Therefore, Indian Customs Waters extend approximately 370.4 kilometers from the shore.

II. Comparison of Statutory Frameworks: GST vs. CST

To understand the practical application of High Seas Sales, one must look at how the law differentiates between general goods and petroleum products.

1.Primary Legal Authority:

For general goods like electronics or textiles, the law resides in Schedule III, Entry 8(b) of the CGST Act. However, for 'The High Five' petroleum products (Crude, HSD, Petrol, Natural Gas, and ATF), the authority remains Section 5(2) of the CST Act, 1956, as these have not yet been notified under Section 9(2) of the GST regime. Therefore C & F forms prescribed under the CST Act, 1956 continue to play their significant role as usual to claim reduced rate of tax in respect of inter-state sales and exemption on inter-state stock transfer of goods [supra] respectively. Likewise domestic sales in transit covered by E-I & E-II forms are in force to avoid double taxation.

2. Legal Classification:

Under the GST regime, an High Seas Sales is specifically classified as 'Neither a Supply of Goods nor a Supply of Services.' Conversely, under the CST Act, it is deemed a 'Sale in the course of Import.' While the terminology differs, the result is identical: the mid-sea transaction is not subject to domestic sales tax/VAT or GST.

3. Taxation at the Port:

When the goods finally reach the Indian port, the tax trigger differs. For GST goods, the buyer pays Basic Customs Duty (BCD) plus Integrated GST (IGST). For petroleum products, the buyer pays BCD plus Additional Duties (CVD and SAD) and applicable cesses.

4. Input Tax Credit (ITC):

Impact for the buyer of GST goods, the IGST paid at the port is fully available as a credit. For petroleum products, the CVD/SAD generally becomes a cost as there is no cross-utilization under the Sales Tax/ VAT system. Crucially, for the seller, the 2019 amendment to Section 17(3) of the CGST Act ensures that no ITC reversal is required for HSS transactions, a benefit that does not directly translate to the older VAT/CST framework.

5. Documentation:

Regardless of the regime, the 'Document of Title'—the Bill of Lading—must be duly endorsed while the goods are in transit to substantiate the claim of a High Seas Sale.

III. Judicial Landmarks:

A. The courts have consistently protected the 'Tax Neutrality' of goods in transit. The  Hon’ble Supreme Court in its Large Bench judgement dated 29/09/1999 in the case of  GARDEN SILK MILLS LTD. Versus UNION OF INDIA - 1999 (9) TMI 88 - Supreme Court held that the 'taxable event' is triggered only when goods are brought into the mass of goods in the country at the customs barrier.

B. Here it is worth to note the judgement dated 13/01/2021 of the Hon’ble Supreme Court rendered in the case of M/s VELLANKI FRAME WORKS Versus THE COMMERCIAL TAX OFFICER, VISAKHAPATNAM - 2021 (1) TMI 501 - Supreme Court. The ruling is summarised like this:

Think of a 'High Seas Sale' like a relay race where the baton (the goods) must be handed over while the runners are still on the track (at sea). The Vellanki case tells us that if you cross the finish line (Customs) yourself, you can't later pretend you handed the baton off to someone else earlier. By filing the official paperwork (the Bill of Entry) in your own name, you have told the government, 'I am the owner bringing these goods into the country.' Once that is done, the 'High Seas Sale' window is slammed shut. You can't use a simple debit note to change the past, and you certainly can't ask the Courts to let you redo your legal strategy just because your first attempt failed. In short: if you want someone else to be the importer, their name must be on the official documents from the start—no exceptions, no take-backs.

C. The division bench judgment dated 09/01/2012 of the Hon’ble Bombay High Court rendered in the case of The Commissioner of Sales Tax Versus M/s. Pure Helium (India) Ltd. - 2012 (2) TMI 5 - BOMBAY HIGH COURT assumes considerable significance in delineating the jurisdictional limits of State taxation in respect of offshore transactions. The Court authoritatively held that sales effected to Mumbai High, notwithstanding its location approximately 150 kilometres off the Maharashtra coastline and its engagement in the production of gas and crude oil, constitute local sales within the State of Maharashtra. In setting aside the levy of Central Sales Tax by treating such transactions as inter-State sales/exports, the Court undertook an elaborate examination of Article 297 of the Constitution, the Customs Act, 1962, the Sale of Goods Act, 1930 and the Central Sales Tax Act, 1956, and concluded that the situs of sale and the jurisdiction to tax must be determined on the basis of statutory fiction and legal control rather than mere geographical distance from the mainland. The ruling clarifies that Mumbai High forms part of the territory over which the State of Maharashtra exercises taxing jurisdiction for sales tax purposes, and that movement of goods to such offshore installations does not, by itself, occasion an inter-State sale or export. The decision thus settles the jurisdictional controversy by reaffirming that transactions of this nature are exigible only to State sales tax and not to CST.

 IV. Conclusion

The common thread through both regimes is the protection of the 'transit phase.' By aligning the Customs Act’s expansive definition of 'Indian Customs Waters' with the CGST and CST Acts' exemptions, the Indian legal system provides robust protection for goods in transit. Whether fuelling the nation’s industry or stocking its shelves, the High Seas Sale remains a vital instrument of tax-neutral global commerce.

Therefore, every High Seas transaction must be scrutinized through a judicial magnifying glass with the same exacting rigor used to calibrate a diamond, for just as a gemstone’s worth is dictated by the non-comparable perfection of its Carat, Colour, Cut, and Clarity (4C), so too must the legal validity of an import be judged by the flawless alignment of its timing and documentation, lest a single procedural blemish shatter the tax-exempt brilliance of the entire enterprise.