Buyers Credit on High Sea Sales Transaction

To Avail Buyer’s / Supplier’s Credit: E: sanjaymandavia@gmail.com, M: +919825560186

What is High Sea Sales ?High Sea Sale

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.

As defined in Central Sales Tax Act 1956. Section 5 (2) 

A sale or purchase of goods shall be deemed to take place in the course of import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.

As per above definition, for a transaction to be consider as high seas sale, it have to satisfy below three conditions,

  1. A sale or purchase shall be deemed to take place in the course of import of the goods into the territory of India only if :
    1. the sale or purchase either occasions such import, or
    2. it is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontier of India.
  2. Section 2(4) of the Sales of Goods Act,1930 defines “document of title to goods,”

“document of title to goods” include a bill of lading, dock warrant, warehouse-keeper’s certificate , wharfinger’s  certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof to the possession or control of goods, or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented”;

The bill of lading is considered to be document of title to goods and the sale can be
made by endorsement delivery or by mere delivery of a blank bill of lading before the goods cross the customs frontier.  It may be noted that airway bill is not a document of title to goods. However, delivery order issued by banker is recognised as a negotiable document.

3.  Section 2(ab) of the Central Sales Tax Act, 1956 defines “Crossing the customs frontiers of India”. It is defined as under:

“Crossing the customs frontiers of India” means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by custom authorities

Process flow of High Sea Sales Transaction

The following is the procedure that is followed in case of High Sea Sales:-

  1. High Sea Seller places order with supplier for import of goods.
  2. Supplier ships the goods to High Sea Seller and submits the documents to his bank counter. (Assumption in this case: Payment mode is Documents Against Payment)
  3. High Sea Seller sells the goods to High Sea Buyer while the goods are still on High Sea by entering into an agreement of sale to effect the sale on high sea of specific goods.
  4. Documents arrives at banks counter of High Sea Seller’s bank. High Sea Seller makes payment from his own funds or using buyers credit and gets documents released.
  5. The document of title i.e. Bill of Lading is endorsed by the High Sea Seller in favour of High Sea Buyer and provides him with local invoice (in INR) and other documents required to file Bill of Entry.
  6. High Sea Seller retains a copy of the endorsed Bill of Lading and hands over original Bill of Lading to High Sea Buyer under covering letter.
  7. High Sea Buyer shall file Bill of Entry and pay customs duty, clearing charges etc. and gets the goods released.
  8. High Sea Buyer hands over a Copy of Bill of Entry to High Sea Seller for further submission to his Bank.

Documents Provided By High Sea Seller to High Sea Buyer

  1. High Sea Sale Agreement
  2. Sale Invoice in INR
  3. Consignee Copy of B/L – Duly Endorsed in favour of Buyer
  4. Import Invoice, Packing List, Certificate of Origin & Insurance Certificate-Duly Endorsed in favour the High Sea Buyer

Conclusion

RBI Master Circular for External Commercial Borrowing and Trade Credit only talks about buyers credit can be taken against import and thus inference needs to be drawn based on  movement of documents and funds. Incase of High Sea Sale, import is done High Sea Seller and documents are routed to his bank by supplier. Final payment to supplier is also done by High Sea Seller. Thus  buyers credit can be arranged by High Sea Seller.

Reference

  1. Central Sales Tax Act 1956. Section 5 (2) and Section 2 (ab)
  2. Section 2(4) of the Sales of Goods Act, 1930
  3. RBI Master Circular for External Commercial Borrowing and Trade Credit
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About Sanjay Mandavia

Trade Finance Consultant
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21 Responses to Buyers Credit on High Sea Sales Transaction

  1. Ashish K says:

    Dear Sir, So do you mean we can take buyers credit for high seas sale? because some banks dont issue LOU for high seas transactions

  2. Sampath says:

    is it possible to go for HSS buyer on payment through inland L.C.

    • Liability of HSS Buyer to HSS Seller is in INR. If the agreed terms of payment between both is Letter of Credit, that yes it is allowed. At the time of submitting the lc document, HSS Seller will submit Invoice, HSS Agreement, Transport documents and all other documents as required by LC.

  3. Harsh says:

    I am looking to import steel from China and enter into a HSS with a customer based in the Middle East to whom I will be selling the imported steel.

    My bankers told me that in case of HSS, they are not willing to issue Letter of Credit. How should I go about this transaction ?

  4. B Dubey says:

    Please let me know that in case HSS transaction when the importer gets payment from High Seas Buyer instantly for the merchandise under the LC; in such case whether the importer customer
    still permitted to raise buyer’s credit or not.

      1. 1. RBI Master circular for ECB & Trade Credit has given right of approval for trade credit transactions to bank for tenure upto 360 days from date of shipment for raw material. RBI has not specified customer specific criteria to decide tenure. Thus it is internal criteria of PNB which will govern the transaction.
        2. Under sanction limit of the client, what is the tenure for buyers credit / non fund based limit been prescribe. As at the time of sanctioning of limits, credit authority would already have gone through the CMA data / past & future trends based on which they would have worked out working capital cycle. Thus whatever tenure they would have mentioned on sanction letter should be final. If customer is expecting longer tenure, than case should again go back to credit authority.
  5. Uchit says:

    Buyer’s credit limit was sanctioned to me from my bank.
    I have imported some material and sold it to an Indian buyer under HSS and got the payment as HSS was against LC.
    Now i do not have imported goods as well do not have debtors as i already got the payments under LC.
    Can i still get Buyer’s credit as i am a first importer?

    • Buyers Credit sanction done by banks are not on transaction to transaction basis but on the yearly working capital cycle of the client. Thus if you sanction letter provides for buyers credit, your banker will allow BC for above transaction as well.

  6. ashish says:

    if in case of A related with B & B imported goods from A & sale it local party on highseas sale basis then SVB or 1% PD is applicable to B or not

  7. Kansal says:

    I heard about this from our lawyer. But he does not seem to have much knowledge about this.
    Actually We are going to setup a business in India.

    Step1. Customers from India will place order with us in India.
    Step2. My brother from USA will send the items directly to India. a 3rd party agency will do the delivery and customs clearance for us.

    As of now we are thinking of registring below:
    Sole propetiership
    VAT no for Punjab
    IEC code

    My queries are:

    1. Will VAT be applicable on the sold products direclty from USA to customers across India? As item will not land in Punjab, where we have to pay VAT…Item will land in other states across India direct to customers..Please clarify.
    2. Do we require CST number to do this type of business?
    3. Will Service tax be applicable?
    4. We are providing a services type things only..As sending items directly from USA to customer. So, how will this business be taken care of?
    Thanks in anticipation

  8. Samay says:

    We have imported some goods and are selling it on HSS basis to another company in our own family. What amount (percentage) of profit margin should be added to original import value of goods? Is there some minimum criteria?

  9. Sanjeev says:

    We are exporters of fabric and we need not take sales tax registration.
    Now we have export order for medicine. Can we buy it high seas from Indian supplier and pay him locally.
    We are interested in turnover in our books. We are not interested in sales tax Registration. Is this possible, , how ?

  10. sapna says:

    can high sea sales buyer make payment directly to exporter of goods?

    • RBI with its circular dated 08 Nov 2013 has allowed payment to a third party for import of goods, subject to conditions as under:

      A. Firm irrevocable purchase order / tripartite agreement should be in place;
      B. Third party payment should be made to a Financial Action Task Force (FATF) compliant country and through the banking channel only;
      C. The Invoice should contain a narration that the related payment has to be made to the (named) third party;
      D. Bill of Entry should mention the name of the shipper as also the narration that the related payment has to be made to the (named) third party;
      E. Importer should comply with the related extant instructions relating to imports including those on advance payment being made for import of goods; and
      F. The amount of an import transaction eligible for third party payment should not exceed USD 100,000. This limit will be revised as and when considered expedient.

      Thus as per above circular, it may be allowed subject to above condition but practical implementation of the same by bank needs to be seem.

  11. sapna says:

    This cannot be considered third party payment,as payment is being made to original supplier/exporter of goods. Two parties have entered in HSS Agreement who are sister concerns. Now HSS buyer want to make payment direcly to exporter. Do u consider any problem in this. What can be advantage by entering into HSS in such case to indian parties.

  12. sapna says:

    query_ in case of import of restricted good,whose import license will be endorsed, HSS supplier makes payment and HSS buyer get the goods cleared from custom.

  13. Prashant says:

    Can a high sea sale buyer avail buyer’s credit? If yes what is the process?

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