Merchanting Trade vs High explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Merchanting trade moves goods from an overseas supplier to an overseas buyer without entering India. A high seas sale transfers India-bound goods in transit before a bill of entry is filed. A re-export sends goods out again after they have been imported into India.
The One Question That Decides It
Where do the goods physically go?
| Merchanting trade | High seas sale | Re-export | |
|---|---|---|---|
| Goods enter India? | No | Yes — cleared by the final buyer | Yes — then leave again |
| Who files a bill of entry | Nobody in India | The final buyer | The importer |
| Shipping bill | Not for the goods | Not applicable | Yes, on re-export |
| Indian customs duty | None | Paid by the final buyer | Paid on import; drawback may be available on re-export |
| GST on the intermediary's sale | Outside the scope of Indian GST | Neither supply of goods nor services under Schedule III | Ordinary import and export treatment |
| Primary regulator | RBI, through the AD bank | Customs and GST | Customs |
| Typical use | Trading house buying and selling between two foreign countries | Importer selling on India-bound goods in transit | Rejected goods, repair, exhibition, unsold stock |
Merchanting Trade
An Indian trading company buys goods from a supplier in one foreign country and sells them to a buyer in another. The goods ship directly between the two, never touching Indian customs territory. India's involvement is purely financial — money goes out on the import leg and comes in on the export leg, both through the Indian entity's account.
Because the transaction is financial from India's point of view, it is regulated by the Reserve Bank of India through its merchanting trade framework, operated by AD banks. The recurring conditions to be aware of:
- Both legs of the transaction must be routed through the same AD bank, which monitors the pair.
- There are time limits between the outward remittance and the inward receipt, so an open-ended position is not permitted.
- The goods must be permissible for import and export under India's Foreign Trade Policy, even though they never arrive.
- Advance payment on the import leg is subject to conditions and, above thresholds, may require security.
- The AD bank satisfies itself on the bona fides of both counterparties and the documents.
Because the conditions have been modified over time, confirm the current framework with your AD bank before structuring a transaction rather than relying on how the last one was done.
High Seas Sale
Goods are shipped from abroad to an Indian buyer. While in transit — after despatch from the origin port and before a bill of entry for home consumption is filed — the original importer sells them on to another Indian buyer by endorsing the documents of title. The second buyer files the bill of entry, pays duty and IGST, and takes delivery.
The GST position is clean: under Schedule III of the CGST Act, supply by endorsement of documents of title before clearance for home consumption is neither a supply of goods nor a supply of services. IGST is levied once, on the final buyer, at the point of import.
The commercial logic is that the end user becomes the importer of record, so duty credits land where they can be used, and the intermediary avoids handling goods it does not need.
Re-Export
Goods are imported into India and subsequently sent out again. Common reasons:
- The consignment was rejected on inspection and is being returned to the supplier.
- Goods were imported for repair or processing and are being sent back.
- Exhibition or demonstration goods are returning.
- Trading stock imported into a bonded facility is sold abroad.
Duty drawback on re-export of imported goods may be available under the relevant provision of the customs law, subject to identity of the goods being established and the prescribed conditions and time limits being met. Where goods are held in a bonded warehouse, they can be re-exported without the duty ever being paid, which is materially better than paying and then claiming back.
Choosing the Structure
- Do the goods have any reason to be in India? If not, structure it as merchanting trade. Duty, logistics cost and clearance risk all disappear.
- Are the goods already India-bound and will they be used here? If the end user should be the importer of record, use a high seas sale — but only within the window, and only with proper endorsement of the documents of title.
- Have the goods already been imported? Then re-export is the only route, and the question becomes whether they are in a bonded facility (re-export without paying duty) or already cleared (pay, then claim drawback).
- Is the transaction genuine in substance? Each structure has documentary hallmarks — an arrangement dressed up as a high seas sale after the bill of entry, or as merchanting trade where the goods actually landed, will not survive scrutiny.
Documentation by Structure
| Merchanting trade | High seas sale | Re-export |
|---|---|---|
| Purchase and sale contracts for both legs | HSS agreement dated after sailing and before the bill of entry | Original import documents and bill of entry |
| Both invoices | HSS invoice | Shipping bill for re-export |
| Transport documents showing the direct movement | Endorsed bill of lading | Evidence of identity of the goods |
| AD bank approvals and remittance records | Original supplier's invoice and packing list | Correspondence evidencing the reason for return |
| Evidence the goods are permissible to import and export | Chain of agreements where sold on more than once | Drawback claim documents where applicable |
Practical Tips
- Decide the structure before the goods ship. Retro-fitting a structure to a movement that has already happened is where problems start.
- For merchanting trade, talk to your AD bank first — they operate the framework and their comfort determines whether the transaction proceeds.
- For a high seas sale, watch the dates: after sailing, before the bill of entry, with the endorsement actually made.
- For re-export, prefer bonded warehousing where you know in advance the goods may go out again.
- Keep the commercial rationale documented in each case; substance is what is tested when the structure is questioned.