No IGST on High Sea Sales But Input Tax Credit Must Be Reversed
High sea sales do not attract IGST, but businesses must reverse input tax credit linked to these sales, rules Maharashtra AAR.
- Ruling
- NO.GST-ARA- 27/2017-18/B-36, Mumbai, dated 21.05.2018
- Dated
- 21 May 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Company asked if IGST applies when selling imported goods while in transit.
- Authority ruled no IGST applies during high sea sales before customs clearance.
- Authority ruled input tax credit used for high sea sales must be reversed.
In short
The company imports goods based on orders received from Indian buyers. While the goods are still in transit, the company sells them to these buyers before clearing them through customs, a process known as a high sea sale. The final buyer pays all customs duties and Integrated Goods and Services Tax (IGST) at clearance. The company asked whether it must charge IGST on this transit sale and whether it must reverse input tax credit (ITC) on expenses related to these deals.
What has changed
How it worked before
Businesses doing high sea sales knew that customs duty and IGST were paid by the end buyer at the port. However, it was unsettled whether the intermediate sale while goods were in transit required reversing input tax credit on business purchases.
What has changed
The Maharashtra Authority for Advance Ruling (AAR) ruled in order GST-ARA- 27/2017-18/B-36 that high sea sales do not attract IGST because import tax is collected at customs clearance. However, because no tax is collected on the transit sale, the authority classified high sea sales as an exempt supply under Central Goods and Services Tax (CGST) rules. Consequently, businesses must reverse input tax credit for inputs and services used to carry out high sea sales.
Who this affects
Importers and trading businesses in India that sell imported goods to buyers while shipments are still in transit before customs clearance.
An example
A Mumbai chemical importer orders goods from Germany for an Indian buyer. Before the ship lands in Mumbai, the importer sells the shipment to the buyer on a high sea sale basis. The buyer files the Bill of Entry at the port and pays customs duty plus IGST. Based on this ruling, the Mumbai importer does not charge IGST on the high sea sale, but must calculate and reverse any input tax credit claimed on overheads and services used to handle that sale.
What you should do
Review your import transactions to identify high sea sales and examine your input tax credit claims. Remember that an advance ruling binds only the business that applied for it and its tax office. Other businesses should consult a tax professional to evaluate how high sea sales impact their specific ITC claims under current rules.
If you do nothing
If you treat high sea sales as non-taxable without reversing proportional input tax credit, tax officers could flag the mismatch during an audit. You may be asked to repay the claimed credit with interest and penalties. Assuming an advance ruling given to another firm protects your business automatically can lead to unexpected tax demands.
The terms explained
- High sea sales
- A transaction where imported goods are sold to a buyer while the shipment is still in international waters or in transit, before customs clearance in India.
- Input tax credit
- The GST you pay on business purchases that you can subtract from the GST you collect on your sales.
- Exempt supply
- Sales that do not attract GST, which prevents you from claiming input tax credit on expenses used to make those sales.
- Bill of Entry
- A legal document submitted to customs authorities declaring imported goods to calculate duties and clear them for entry into India.
The ruling in detail
Authority for Advance Ruling
M/s BASF India Limited
NO.GST-ARA- 27/2017-18/B-36, Mumbai, dated 21.05.2018 · Maharashtra
Questions before the authority
- The Applicant will be purchasing the goods from its overseas related party situated abroad based on purchase order received from its customers. While the goods are in transit, the goods will be sold by the Applicant to its customers before the goods are entered for customs clearance in India. Whether IGST will be leviable on such sale effected by the Applicant to customers who are known to them at the time of placing order on the overseas party?
- Whether input tax credit will have to be reversed, to the extent of inputs, input services and common input services used by the Applicant, in case the above transaction is not subjected to the levy of IGST by treating the same as an exempt supply for the purpose of Section 17 of the CGST Act?
Facts
The applicant purchases goods from an overseas related party against purchase orders received from its Indian customers. While the goods are in transit to India, the applicant transfers title to the goods to its Indian customers on a high sea sales basis before customs clearance. The ultimate customer files the Bill of Entry and pays all applicable customs duties and IGST at the time of clearing the goods for home consumption.
Ruling
| Question | What the authority ruled |
|---|---|
| Levy of IGST on high sea sales before customs clearance | Answered in the negative IGST is payable only at the point of customs clearance by the buyer who files the Bill of Entry. |
| Reversal of ITC under Section 17 for high sea sales | Answered in the affirmative High sea sales qualify as non-taxable/exempt supplies, triggering proportional ITC reversal. |
The Authority held that **IGST is not leviable** on high sea sales effected by the applicant prior to customs clearance, as IGST on imported goods is levied only at the time of customs clearance. However, high sea sales constitute a non-taxable supply under Section 2(78) of the CGST Act, which falls within the definition of exempt supply under Section 2(47). Consequently, **input tax credit must be reversed** under Section 17 of the CGST Act to the extent of inputs, input services, and common input services used for such transactions.
Reasoning
The Authority held that although high sea sales constitute inter-State supply under Section 7(2) of the IGST Act, the proviso to Section 5(1) specifies that IGST on imported goods is collected in accordance with Section 3 of the Customs Tariff Act, 1975 at the time of customs clearance. Thus, no IGST is leviable on the high sea sale transaction itself. However, because no tax is leviable under the GST Act prior to customs clearance, high sea sales fall under 'non-taxable supply' as defined in Section 2(78) of the CGST Act. Since Section 2(47) defines exempt supply to include non-taxable supply, high sea sales are treated as exempt supplies. Consequently, Section 17 of the CGST Act mandates the reversal of input tax credit attributable to inputs, input services, and common input services used for effecting such sales.
Provisions relied on
- Section 5(1) proviso of Integrated Goods and Services Tax Act, 2017
- Section 7(2) of Integrated Goods and Services Tax Act, 2017
- Section 2(47) of Central Goods and Services Tax Act, 2017
- Section 2(78) of Central Goods and Services Tax Act, 2017
- Section 17 of Central Goods and Services Tax Act, 2017
- Section 3 of Customs Tariff Act, 1975
- Section 12 of Customs Act, 1962
- Circular No. 33/2017-Cus dated 01.08.2017
- Circular No. 3/1/2018-IGST dated 25.05.2018
For the practitioner
This ruling establishes that high sea sales do not attract IGST at the time of transfer prior to customs clearance. However, under the legal framework existing at the time of this ruling, such transactions are classified as **non-taxable supplies requiring ITC reversal** under Section 17 of the CGST Act. Tax practitioners should note that subsequent statutory amendments to Schedule III of the CGST Act specifically addressed high sea sales.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/mah_aar_27_2017-18_b-36_basf_india_ltd.pdf
Legibility of the scan, as read: high.
Prepared 18-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.