High Seas Trading - what is it?In short High Sea sale is when the cargo is already loaded on a ship and sailing on the high seas (international waters, under no jurisdiction) without actually being sold to the final buyer yet. Seller is looking for a buyer, while shipmenet is on the way. Once the cargo is sold, the captain of the vessel is notified to change course and deliver it to the new buyer’s port. Usually the ship is sailing in a certain direction (example: from Brazil to Middle East). Seller is looking for buyers in destination area (which in this example can be any Middle Eastern country, India, Pakistan, etc..)
What is the reason for selling on High Seas?High Sea sale is done to avoid the burden of Local Sales Tax or VAT which would otherwise have to be paid by the final buyer if the cargo was first bought by the importer and then re-sold to the final buyer. What High Sea Sale does, is put the final buyer in the possition of direct importer thus saving him an aditional tax. For that reason, goods bought on the high seas, while the ship is in international waters are between 25% - 5% cheaper for the final buyer (depends on the Local Sales Tax / VAT rate in buyer’s country).
Is High Sea Trading Legal?“High seas sale” sounds like something done hush-hush in the middle of the ocean like we see in the movies. Which is why you have instinctively raised doubts about its authenticity and legality. Let me assure you, “high seas sale” is a perfectly legal transaction though the term might have a mysterious ring to it. High sea sale is simply turning the final buyer into direct importer, and thus saving on the Sales Tax / VAT which would have to be paid on the re-sale if the importer was involved as a middle man.
Example of sale on the High Seas: Suppose a Candy producer in India needs raw sugar which, if imported, would be more economical for him. But he cannot directly import, as the volumes simply do not justify such direct effort. He, therefore, decides to buy it from a sugar trading company in this country whose main business is import/export of raw sugar.
Suppose further that the trading company is in Mumbai where it normally unloads the imported sugar. The candy producer will now have to pay Sales Tax, as the transaction is between two companies (Sugar trading company and Candy producer). You may note that the Sugar trading company has already paid the import duty on the sugar from Brazil. “High seas sale” enables one to avoid the second dose of taxes. In this example, the Candy producer could have approached the Sugar trading company much before the goods reached the Mumbai port. In other words, the Sugar trading company could have sold the sugar to the Candy producer while the goods were still at “high seas”. This is possible by suitable endorsement to the document of title to the goods.
Because the sugar was sold in high seas, the Candy producer becomes the importer. He now has to pay the Customs duty (which he would have to pay in any case even if he bought the sugar from the Sugar trading company after the cargo has landed in Mumbai) because the Sugar trading company would have passed on the duty liability to him. But now the Candy producer does not have to pay the Local Sales tax / VAT because the movement of sugar from Mumbai to Delhi is not seen as a sale but rather as simple transport from one location to another by the same owner (the Candy producer) without involving any sale. The purpose of the whole procedure, therefore, is to get rid of the final sales tax / VAT liability. It does not matter if the trading company and final buyer are in the same country, what matters is that the final buyer also becomes the importer and does not have to buy the imported sugar locally.
CAclubindia
