‘High seas’ sale is nothing but sale in course of import. As per Article 286 of Constitution of India the State Governments are debarred from levying tax on any sale/purchase transaction taking place in course of import or export. The Constitution has given power to Parliament to draft the principles for determination of nature of sale/purchase transaction taking place in course of import/export. Section 5(2) of CST Act, 1956 accordingly provides for principles for determination of the nature of transaction taking place in course of import. The said section 5(2) reads as under:
 

Thus there are two limbs of section 5(2). Under first limb the sale/purchase occasioning the movement of goods from Foreign Country to India is considered to be in course of import. In this category generally the direct purchase transaction from Foreign Country will get covered. For example, if A imports goods from B in USA, then the sale by B to A is in course of import and for B, it is purchase in course of import.

The second limb provides sale in course of import by transfer of documents of title to goods before the goods crosses the Customs Frontiers of India. Thus the second category is expanding the first limb. When the goods are coming from foreign country and if the importer sales above goods by transfer of documents of title to goods then such sale also will be in course of import. The transfer of documents should be before the goods crosses the Customs Frontiers of India.

When crossing the Customs Frontiers of India takes place has been subject matter of interpretation before various judicial forums.

For ready reference, reference can be made to the judgment of Maharashtra Sales Tax Tribunal in case of Anurag Agencies Pvt. Ltd. (S.A. 1506 & 1507 of 1999 dt. 31.3.2001).

In this case Tribunal has held that till the Bill of Entry (B/E) is presented to Customs Authorities, the goods continue to be within Customs Frontiers. Once the B/E is presented then the Customs Frontiers ends and the goods crosses the Customs Frontiers of India. Thus, any sale effected by transfer of documents of title to goods before B/E is presented for clearance of goods, will be in course of Import.

Thus, the easy test to prove sale by transfer of documents of title to goods before crossing Customs Frontiers of India is to show that the ultimate purchaser has cleared the goods by presenting B/E in his name.

The requirement for effecting such sale can be described as under.
 

While preparing sale invoice the seller should mention on the same that this is sale by transfer of documents of title to goods viz: B/L No........ date ........, effected in course of import and exempt from tax u/s. 5(2) of CST Act, 1956

Normally the documents issued by the person possessing the goods of other person is considered as documents of title to goods. Such person holding the goods for other person is bound to deliver the said goods back to owner or to other person to whom such documents are transferred. In commercial world, if the documents of title to goods are negotiable documents of title to goods then sale can be effected by transfer of such documents. The examples of documents of title to goods can be Bill of lading, lorry receipts, railway receipts, warehouse keepers receipts, Delivery orders etc. So far as high seas sale is concerned it can be effected by transferring the B/L to the purchaser, before goods crosses the Customs Frontiers of India.

A situation is required to be seen carefully in case of high seas sale by transfer of Airway Bill issued by Air Freight Co., when the goods are coming by Air. The AWB is not considered as negotiable instrument. On face of AWB it is mentioned as “not negotiable”. It is a contract receipt for carriage of goods. In this respect the reference can be made to judgment of Maharashtra Sales Tax Tribunal in case of M/s. Nawrojee Wadia & Sons (P) Ltd. (S.A. 42 of 1989 dt. 4.5.1990). In this case Tribunal has held that AWB is not a negotiable instrument and no high seas sale can be effected by transfer of such AWB.

At times, the goods are coming by AWB but the documents come through Bank against

L/C etc. On payment to bank, as per relevant terms, bank issues delivery order to the importer for taking delivery from Air Freight Co. If this type of delivery order is transferred before the B/E is presented then again the high seas sale is possible.

In this respect a reference can be made to judgment in case of B. M. Shah & Co. (142 STC 297), wherein Bombay High Court has approved the high seas sale effected by transfer of Bank Delivery order. It can be mentioned that for goods coming by AWB the high seas sale can be effected if the possibility of endorsing Delivery order either issued by bank or any other competent authority exists.