Quick Answer: Taxability of High Seas & Bonded Warehouse Sales
1. Overview & Schedule III Non-Supply Status
In international maritime commerce and merchant trade, goods frequently change ownership while in transit on international waters or while resting under customs supervision inside public or private bonded warehouses. Prior to the CGST (Amendment) Act, 2018, these transactions generated severe litigation regarding dual taxation—whether the domestic transfer attracted IGST as an interstate supply while simultaneously attracting customs duties upon physical port clearance.
Parliament permanently resolved this statutory ambiguity by amending Schedule III of the CGST Act, 2017 (with retrospective clarity under Circular No. 33/2017-Customs and Circular No. 3/1/2018-IGST). Entries 7 and 8 explicitly categorise these transactions as non-supplies under GST:
Entry 8(b): High Seas Sales
Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
Entry 8(a): Bonded Warehouse Cargo
Supply of warehoused goods to any person before clearance for home consumption. Warehoused goods under Section 2(43) of the Customs Act, 1962 can be transferred without triggering any interim GST liability.
2. High Seas Sales: Definition & Transfer of Documents
A High Seas Sale (HSS) occurs when the original Indian purchaser (consignee) buys merchandise from an overseas supplier, and while the cargo is physically sailing beyond the territorial waters of India, sells those goods to a secondary Indian buyer before the vessel anchors or the import manifest is finalized.
The Legal Mechanism: Endorsement of Documents of Title
Ownership is transferred not by physical handoff, but by endorsing the negotiable Bill of Lading (B/L). The original importer signs an endorsement on the reverse of the Bill of Lading reading: "Please deliver to the order of M/s [Buyer Name]", executing a binding High Seas Sale Agreement accompanied by commercial invoices clearly noting zero GST.
3. Customs Bonded Warehouse Sales (In-Bond Transfers)
Under Section 59 of the Customs Act, 1962, an importer may file an Into-Bond Bill of Entry (Yellow Bill) to transfer imported goods into a licensed customs warehouse (Public Warehouse under Section 57 or Private Warehouse under Section 58) without paying import duties up front.
While stored in the bonded warehouse, the owner can sell the consignment to third parties using an In-Bond Transfer (Section 59/60 procedure). Under Schedule III Entry 8(a), these intermediate domestic transfers are outside the ambit of GST. Duty payment remains legally deferred until the final owner files an Ex-Bond Bill of Entry (Green Bill) under Section 68 to clear the cargo into the domestic tariff area (DTA).
4. Bill of Entry: Into-Bond vs Ex-Bond Valuation
Customs duty and IGST are computed on the Assessable Value established under Section 14 of the Customs Act, 1975. In cases involving high seas sales or multiple in-bond sales, the customs authorities apply statutory valuation safeguards:
| Transaction Type | Customs Filing Document | Assessable Value for Customs & IGST |
|---|---|---|
| Standard Direct Import | Home Consumption BoE (White Bill) | CIF Price + Landing Charges (1%) + BCD |
| High Seas Sale (HSS) | Home Consumption BoE by HSS Buyer | HSS Commercial Invoice Value (must exceed original CIF cost) + BCD |
| Warehousing Initial Entry | Into-Bond BoE (Yellow Bill) | CIF Valuation (Duties calculated & bonded under triple-duty bond) |
| Clearance from Warehouse | Ex-Bond BoE (Green Bill) | Higher of: Original Into-Bond Value or Last In-Bond Sale Price + BCD |
5. CBIC Circulars 33/2017-Cus & 3/1/2018-IGST
Taxpayers facing inquiries from field formations should rely on two pivotal circulars issued by the Central Board of Indirect Taxes and Customs:
- Circular No. 33/2017-Customs (Dated 01-08-2017): Clarified that high seas sales are not subject to IGST under the IGST Act, 2017 because all duties are collected under customs laws upon the arrival of goods. Levying IGST at the high seas stage would lead to double taxation.
- Circular No. 3/1/2018-IGST (Dated 25-05-2018): Clarified that supply of warehoused goods to another person prior to home consumption clearance is subject to IGST only once—at the time of filing the Ex-Bond Bill of Entry.
6. Section 17(2) ITC Reversal & Rule 42 Impact
One of the most significant concerns for merchant exporters and traders was whether undertaking tax-exempt Schedule III sales would force them to reverse their common input tax credits (such as rent, software, legal, and banking charges) under Section 17(2) read with Rule 42 of the CGST Rules.
Statutory Shield: Section 17(3) Explanation
The CGST Amendment Act, 2018 inserted an explicit Explanation to Section 17(3) providing that for calculating the aggregate value of exempt supplies under Section 17(2), the value of activities specified in Schedule III (other than Paragraph 5 - sale of land and completed building) shall NOT be included.
Conclusion: High seas sales and bonded warehouse transfers do NOT dilute common ITC. Traders enjoy 100% full credit eligibility on their business overheads.
7. Head-to-Head: High Seas vs Bonded vs Normal Import
| Parameter | High Seas Sale (HSS) | Bonded Warehouse Sale | Normal Direct Import |
|---|---|---|---|
| Statutory Section | Schedule III, Entry 8(b) | Schedule III, Entry 8(a) | Section 7(2) IGST Act |
| Location of Goods | High seas / International waters | Inside Customs Bonded Warehouse | Overseas to Indian Port |
| GST on Seller's Invoice | 0% (Non-Supply) | 0% (Non-Supply) | N/A (Foreign Invoice) |
| Duty Payment Timing | Upon vessel port arrival | Deferred until Ex-Bond filing | Within 24 hours of BoE filing |
| Who Pays Duty & IGST? | Final High Seas Buyer | Final Ex-Bond Clearer | Original Importer |
| ITC Eligibility for Buyer | 100% IGST credit via BoE | 100% IGST credit via BoE | 100% IGST credit via BoE |
8. Mandatory Legal Documents & Endorsement Trail
For High Seas Sales
- High Seas Sale Agreement on non-judicial stamp paper
- Original Bill of Lading endorsed in favour of buyer
- Original Commercial Invoice of foreign supplier
- High Seas Seller Invoice (stating Schedule III Entry 8b)
- Import General Manifest (IGM) showing amendment
- Packing list, Certificate of Origin, and Marine Insurance
For Bonded Warehouse Sales
- Into-Bond Bill of Entry (Yellow Bill) copy
- Warehouse Space Allocation Certificate
- Form for In-Bond Transfer under Section 59/60
- Commercial Invoice with Schedule III Entry 8a declaration
- Bond execution register maintained with Customs Officer
- Ex-Bond Bill of Entry (Green Bill) copy showing IGST
9. Step-by-Step Execution SOP for Traders
- Step 1: Execute HSS Contract Before Port Arrival: Ensure the High Seas Sale Agreement is executed while the vessel is still in international waters. Contracts dated after vessel berthing are treated as domestic sales and trigger full GST.
- Step 2: Endorse Bill of Lading & Amend IGM: Submit the endorsed original B/L to the shipping line to amend the consignee name in the Import General Manifest (IGM) prior to customs filing.
- Step 3: File Bill of Entry for Home Consumption: The buyer's Customs Broker files the BoE on ICEGATE disclosing both the foreign supplier's invoice and the HSS invoice, paying customs duty and IGST.
- Step 4: Auto-Population in GSTR-2B: ICEGATE pushes the BoE details to GSTN. The IGST paid reflects in Table 4(A)(1) of GSTR-2B for seamless ITC claim in GSTR-3B.
10. Invoicing & Inward GSTR-1 / GSTR-3B Reporting
How should a seller report high seas or bonded warehouse sales in statutory GST returns?
Statutory Return Disclosure Guide
- GSTR-1 Reporting: Schedule III transactions are non-supplies and are technically not required in Table 4 or Table 6. However, to reconcile with annual turnover in GSTR-9 (Table 5F - Non-GST Outward Supplies), report them under Table 8 of GSTR-1 as "Non-GST Supplies".
- Invoice Footer Note: Mandatorily insert the statement: "Supply covered under Entry 8(b) [or 8(a)] of Schedule III of the CGST Act, 2017. Not treated as supply of goods or services under GST. Customs duties and IGST payable by buyer at the time of customs clearance."
- E-Way Bill: An E-Way Bill is NOT required for high seas sales since the goods are outside the territory of India during the sale. Once cleared from customs, standard domestic E-Way bill rules apply for transport from port to factory.
11. Audit Pitfalls & DRI Investigation Triggers
Critical Non-Compliance Traps
- Agreement Date Post Vessel Berthing: If the stamp paper or agreement date is on or after the vessel's arrival date (Entry Inwards), customs will reject HSS and state GST officers will demand 18% IGST with Section 50 interest.
- Under-Valuation on Ex-Bond Clearance: When goods appreciate in the market while bonded, declaring the initial Into-Bond value instead of the actual sale consideration violates Section 3(8A) of the Customs Tariff Act.
- Incorrect Rule 42 ITC Reversal: Reversing common ITC assuming HSS is an exempt supply reduces legitimate business profits unnecessarily. Know your rights under the Section 17(3) Explanation!
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