MERCHANTING TRADE

Merchanting Trade and High Seas sale:

Often, in Import related transactions these two terms are not interpreted correctly. To have clear understanding, please go through the following:

Merchanting Trade

Merchanting Trade transactions are those transactions where the trader in one country A, purchases goods from country B and supply the goods to a buyer in country C. Thus the goods never touch the boundary of the country of trader. In India such trade transactions are regulated and certain restrictions are placed on them. The RBI guidelines on such transactions are available in Master Directions on Imports of Goods and Services Para C.14.

High seas sale:

If a buyer wants to sell his consignment to a third party before arrival of goods but after sailing vessel from load port, such sale is known as high sea sale. In simple words, the ownership of goods is transferred, when goods are on transit.

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 three conditions:

  1. A sale or purchase shall be deemed to take place in the course of import of the goods in to the territory of India only if :
    1. the sale or purchase either occasions such import, or
    1. 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.

  •  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 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.