HIGH SEA SALES. By Timir Baran Chatterjee. Sr. Executive Vice President (Corporate Affairs & Legal) & Company Secretary, DIC India Limited, Kolkata

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1 HIGH SEA SALES By Timir Baran Chatterjee Sr. Executive Vice President (Corporate Affairs & Legal) & Company Secretary, DIC India Limited, Kolkata 1. High Sea Sales- Meaning High Sea Sale Transaction means Sale Transaction done when goods are actually at High Sea i.e. during sea transit between Port of Loading and Port of Discharge. The date of transaction (agreement) should be between Bill of lading date and Vessel arrival date at Port of discharge. High Sea Sale is done mostly by Traders, sole Indenting Agent (of the Foreign Supplier) who buys in large quantity and then look out for buyers at Destination Country.

2 Benefits of HSST are like (1) Goods are available at short time to final buyers, (2) Also instead of buying entire shipment small quantities also can be bought for final buyers and (3) First buyer can buy large quantity of goods at cheap / reasonable price and sale at best price to final buyers. Drawbacks of HSST are like (1) Cumbersome documentation / procedures and (2) Loading of pricing for Customs assessment. High Sea sales contract/agreement should be signed after dispatch of goods from origin & prior to their arrival at destination. The agreement should be on stamp paper. On concluding the High Sea Sales agreement the bill of lading (B/L) should be endorsed in favor of the new buyer. In respect of air shipment, High Sea seller should write to the airline/consol agent informing that an High Sea Sales agreement has been established with the High Sea Sales buyer and that the carrier document should be considered as endorsed in favour of High Sea sales buyer and further the import General Mani face (IGM) should be filed by the carrier in name of High Sea buyer. 2. Why High Sea Sales

3 High Sea sales in considered as sale contract carried out outside the territorial jurisdiction of India. Accordingly, no sale tax is levied in respect of High Sea sales. The Custom documents (B/E) is either filed in the name of High Sea buyer or such Bill of entry as endorsement indicating High Sea buyer s name. The title of goods transfer to High Sea buyer prior to entry of goods in territorial jurisdiction of India. The delivery from customs is therefore on account of High Sea buyer. The CENVAT credit in respect of CVD paid on import is entitled to High Sea buyer. High Sea Sales goods are entitled to classification, rates of duty and all notifications benefits as would be applicable to similar import of goods on normal sale. 3. Key Issues with regard to High Sea Sales (HSS) 3.1.High Sea sales (HSS) is a sale carried out by the carrier document consignee to another buyer while the goods are yet on high seas or after their dispatch from the port/ airport of origin and before their arrival at the port / airport of destination.

4 3.2. HSS is accepted under the import trade control regulation. 3.3 HSS contract/ agreement should be signed after dispatch of goods from origin & prior to their arrival at destination. The agreement should be on stamp paper. 3.4 On concluding the HSS agreement, the B/L should be endorsed in favour of the new buyer. In respect of air shipment, HSS seller should write to the airline / consol agent informing that a HSS agreement has been established with the HSS buyer and that the carrier document should therefore be considered as endorsed in favour of the HSS buyer and further the IGM should be filed by the carrier in the name of the HSS buyer EDI system allows name of HSS buyer to file the bill of entry in the system. In this case the B/E is filed in the name of the original importer as the IGM is in this importer name. However, the B/E shows the name of HSS buyer under a separate head in the B/E format. If the system has no provision for showing the name of HSS buyer on the B/E then the IGM should be got amended and B/E filed in the name of the HSS buyer In the case of HSS, the CIF value for calculation of duty is taken to be the HSS value.

5 3.7. There is practice followed in customs that in case the HSS transfer takes place at import invoice value only, the custom would add 4% of CIF value as HSS loading factor. There have been cases where HSS sellers have sold at two percent more than import CIF but custom have added 4% of CIF as HSS value addition. Such practice of customs can be challenged at the customs duty is chargeable on genuine transaction value In HSS contracts the HSS seller may not like to disclose the import value to the HSS buyer. However, the customs can call for the original import invoice, in which case the HSS seller may have to part with this information. To overcome this, HSS seller should take on the responsibility of custom clearance and site delivery. After custom clearance, the HSS seller could withdraw import invoices and only hand over clearance documents with HSS agreement to the HSS buyer. The custom bill of entry does not indicate original import value and is prepared on HSS value. 3.9 There is no bar on same goods being sold more than once on high seas. In such cases, the last HSS value is taken by customs for purposes of duty levying. The last HSS agreement should give indication of previous title transfers. The last HSS buyer

6 should also obtain copies of previous HSS agreement as such documents may be called upon by the customs HSS is considered as a sale carried out outside the territorial jurisdiction of India. Accordingly, no sales tax is levied in respect of HSS. The customs documents (B/E) is either filed in the name of HSS buyer or such B/E has an endorsement indicating HSS buyer's name The title of goods transfers to HSS buyer prior to entry of goods in territorial jurisdiction of India. The delivery from customs is therefore on account of HSS buyer. The CENVAT credit in respect of CVD paid on import is entitled to HSS buyer HSS goods are entitled to classification, rates of duty and all notification benefits as would be applicable to similar import goods on normal sale HSS is also applicable to goods imported by air. Sea appearing in HSS should not be constructed by its grammatical meaning. As long as the sale is formalized after dispatch from airport / port of origin and before arrival at the first port of discharge / airport at destination, such sale is considered as HSS.

7 3.14. Sometime HSS buyers buy goods after their arrival. Such sale will not be treated as HSS. The stamp paper on which the HSS agreement is executed must not bear the stamp paper purchase date as being post cargo arrival date. Such a case can easily be detected by customs as being a post arrival sale If the HSS seller does not mind disclosing original import values to HSS buyer, in such case it is better from custom clearance point of view for the seller to endorse the B/L, invoice, packing list in favour of the HSS buyer. The endorsement should read "Transferred on High Sea Sales basis to M/S for a sales consideration of Rupees ". Such endorsement should be stamped and signed by the HSS seller. 4. High Sea Sale Agreement As explained HSS should always be supported by a High Sea Sale Agreement. A format of the HSS Agreement is appended below.

8 1. Name & address of the Buyer 2. Other details of Buyer Import code No. I.T. Regn.No. VAT Regn.No. CST Regn.No. 3. Name and address of the seller 4. Goods 5. Quantity / Invoice No 6. Name of Vessel 7. Bill of Lading No. 8. Price HIGH SEA SALE AGREEMENT.

9 9. Delivery All right, title and interest of the seller in the Goods will be transferred by the seller to the buyer by endorsing the Bill Of Lading in favour of the Buyer. 10. Name of the Foreign Supplier 11. Duty Custom Duty, Import Duty or any other levy or duty shall be borne and paid by the Buyer. 12. Tax Sales Tax, Central or State, Customs Duty, Countervailing Duty, Octroi and the like or any other charge if payable or imposed or levied or leviable by any authority whomsoever, either on the goods or on the prices thereof, shall be borne and paid by the Buyer. If for any reason, any of the aforesaid is paid by the seller, the same shall be forthwith reimbursed by the Buyer to the Seller. 13. Clearance The Buyer shall make its own arrangement for obtaining delivery and clearance of the goods from the Customs and Port Authorities and shall bear and pay Port Charges, Wharfage, Handling charges, Transport charges, demurrage, Octroi and any other charges whatsoever in this regard. 14. Other charges All other charges including but not limited to Letter of Credit, Letter of Credit amendment charges, Bank interest, commission and other charges for the retirement of documents shall be paid by the.. If for any reason, any of the aforesaid is paid by the seller, the same shall be forthwith reimbursed by the Buyer to the Seller. 15. Payment The Buyer shall make payment to the Seller forthwith on receipt of the Bill of Lading duly endorsed in the Buyers favour. In case of delay in payment by the Buyer, the Buyer shall pay to the Seller interest at the rate of % per annum on the outstanding amount. 16. Insurance The Seller shall nominate and subrogate its rights to the Buyer to enable the Buyer to directly deal with the Insurance company, Steamer Agent and /or Customs Authorities. 17.General Conditions The Buyer shall on clearing the consignment through the Customs Authorities, make available to the Seller, copies of the exchange control, copy of the Supplier s Invoice, Bill of Lading and the Seller s Clearing Agent s bill. The seller shall not be responsible for non-fulfillment of any of its obligations resulting from a force majeure event which shall mean any and all circumstances which the Seller cannot prevent despite using reasonable care, including, but not limited to Act of God, war or warlike events, explosion, fire, strike, boycott and act or omission to act by authorities. Defects, if any, should be notified and specified in writing within 10 (ten) days of receipt of goods. If defects are notified within the time specified, the Seller warrants that it shall replace the defective goods with goods of the same type conforming to specification, thereby freeing the Seller from any further claim by the Buyer. If the Seller does not provide such replacement, the Buyer has the right to raise rescission or price reduction claims, but no claims for damages. The Seller does not warrant for products which are at an experimental stage.

10 Weights as recorded in this agreement shall be final and binding on the Buyer. The Seller shall not be responsible for damage resulting from faulty usage, storage, transportation or alteration of the goods by the Buyer or by third parties. Technical assistance, if any, is based on the current state of the Sellers knowledge. Notwithstanding any such recommendation, the Buyer shall remain responsible for satisfying itself that the goods are suitable for its intended purpose. The Buyer shall ensure that intended use of the goods will not infringe any third party s intellectual property rights. The agreement between the Seller and the Buyer are subject to Laws of India. Only Courts in New Delhi/Delhi shall have jurisdiction to try all matters and disputes between the Seller and the Buyer in exclusion of Courts elsewhere. No subsequent agreement amending, supplementing or terminating these terms & conditions shall be binding upon the Seller unless it is recorded in writing and has been signed by a duly authorised representative of the Seller. 18. Disclaimer The following shall always supersede a Buyer s document notwithstanding anything to the contrary contained herein or therein:- 19. IEC No.of the seller 20. A.D.Code by Bank 21. Branch THE SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING OF MERCHANTABILITY OR FITNESS OF THE GOODS FOR A PARTICULAR PURPOSE. Under no circumstances shall the seller be liable for incidental, consequential or indirect damages for alleged negligence, breach of warranty, strict liability or contract arising in connection with the goods. The Buyer s sole remedy and the Sellers sole liability for any claims shall be the Buyer s purchase price. Data and results are based on controlled or lab work and must be confirmed by the Buyer by testing the goods for its intended use or conditions of use. Signature of the Seller For We accept all the aforesaid. Signature of Buyer. For..