GST high seas

[Madhavan iyengar]

Experts view required

A Company has purchased material on high seas for ₹ 5 lacs and sold it on highseas in FY 2015-16 ( all highseas agreements are in place) ( the sales value was ₹ 15 lacs)

At time of raising invoice to customer for high seas sales in FY 2015-16 the value was mentioned as ₹ 10 lacs only

Now company in FY 2019-20 the Company intends to raise differential invoice / debit note of ₹ 5 lacs

Query: will this differential invoice of ₹ 5 lacs attract GST or will it be treated as non gst supply

The underlying transaction was a highseas sale transaction

[Rajagopalan Ranganathan]

Sir,

'High Sea Sales' is a common trade practice. In this case the original importer sells the goods to a third person before the goods are entered for customs clearance. After the High sea sale of goods, the customs declaration, that is, Bill of Entry etc. is filed by the person who buys the goods from the original importer.

As per clause (b) of Schedule III of CGST Act, 2017, supply of goods by the consignee to any other person by endorsement of documents of title to the goods after goods have been dispatched from the port of origin located outside India but before clearance for home consumption shall be treated neither as a supply of goods nor a supply of services. Therefore raising of debit note for differential price of 5 lakhs will not attract goods and service tax

[KASTURI SETHI]

At present, this transaction is non-GST supply. Debit note is related to the original invoice. I think VAT was leviable on High Sea Sale. If VAT was leviable, VAT will have to be paid on the differential amount of ₹ 5 lakhs. These are, de facto, escalation charges as per the agreement and these should form the part of taxable value for the purpose of VAT. There is a plethora of judgements on the issue of 'escalation charges' for inclusion into taxable value.

See Section 20 (2a) of SGST Act. There is a saving Section for such recovery of Govt. dues if arise.

[Kashish Gupta]

Hi Madhavan iyengar Ji,

Please refer section 142(11)(a) of State Goods and Services Tax Act, 2017 which reads as under:

"Notwithstanding anything contained in section 12, no tax shall be payable on goods under this Act to the extent the tax was leviable on the said goods under the Value Added Tax Act, "

Therefore, please check whether said transaction was exigible to taxes under relevant VAT law. It may be exempted, but we need to check for its leviability.

[KASTURI SETHI]

GST on differential amount is payable under Section 142 (2a) of CGST Act. High Sea Sales attracted SAD in pre-GST era.

[KASTURI SETHI]

Pay GST and avail ITC without inviting Section 73 or Section 74 of CGST Act.

[VaibhavKumar Jain]

Both Customs duty and IGST shall be applicable for the differential amount on ultimate importer of goods since the BOE was prepared on ₹ 10 lakhs only (i.e. under valued). However, the high sea seller is not required to charge any tax for such transaction.

AI Summary

High seas sale tax treatment: differential invoices may be non GST if Schedule III applies, but prior VAT liability can make them taxable. Whether a post-sale differential invoice for a high seas sale attracts GST turns on characterisation: endorsements of title under Schedule III are treated neither as supply nor service and may fall outside GST, but transitional rules preserving tax liability where VAT or other indirect taxes were leviable can render the differential amount taxable; customs valuation and BOE under valuation may trigger customs duty and IGST consequences for the importer, while the high seas seller may not be required to charge GST.