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HSN (Harmonized System of Nomenclature) Classification of Goods/Products/Commodities under GST Act.

The Harmonized System is an international nomenclature for the classification of products/commodities. It provides standards to classify traded goods on a common basis for taxation or policy making purposes. At the international level, the Harmonized System (HS) for classifying of goods is a six-digit code system, which has been expended 10-12 digits with a view to cover up more specific interpretations of the goods. The Harmonized System of Nomenclature has been maintained by World Customs Organization, which is modified from time to time by a high power tariff Committee of the organization. The latest version of HSN 2017 has also been issued but it has not yet been adopted by us.

The HS comprises approximately 5,300 article/product descriptions that appear as headings and sub-headings, arranged in 98 chapters (under Customs in fact there are 99 chapters), and grouped in 21 sections. However, under Central Excise Tariff only 20 Sections are utilized, since the last one (work of Art, Collectors’ pieces and Antiques) is not relevant for Central Excise or GST. The classification digit metrics may be broken into sub-parts like:

(a)        The first two digits (HS-2) identify the Chapter the goods are classified in. For example, Chapter 61 represents “the Articles of Apparel and Clothing Accessories, Knitted or Crocheted.”

(b)       The next two digits (HS-4) identify groupings within that chapter, e.g. “6101” Men’s or boys’ overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets), wind-cheaters, wind-jackets and similar articles knitted or crocheted, other than those of heading 6103.

(c)        The next two digits (HS-6) are even more specific, e.g. 6101 30 - of man-made fibers.

(d)       Next two digits (HS-8) specifies the categories at micro level. It specify the man-made fibers into further micro division like 6101 30 10 of synthetic fibers and 6101 30 20 - of artificial fibers.

From above we may see that chapter headings of two digits are basically specifying the class of products. Headings at 4 digit level specifying group of product under that class. At six digits the domain of group is narrowed down to a particular nature of commodity. However, when it comes to eight digits, the nature of goods gets specified at micro level. Accordingly, we may say that the classification at 8 digit level represent a unique identity of commodity except the heading - “Other” which are basically the basket containing all other products falling under that sub-group.

The Harmonized System was introduced in 1988 and has been adopted by most of the countries worldwide. It has undergone several changes in the classification of products. These changes are called revisions and entered into force in 1996, 2002, 2007 and 2012. The last modification has also be published in 2017 which are yet to be adopted by several countries including India.

It comprises about 5,000 commodity groups; each identified by a six digit code, arranged in a legal and logical structure and is supported by well-defined rules to achieve uniform classification. The system is used by more than 200 countries and economies as a basis for their commodity classification called Customs tariffs. In India, the Harmonized System of Nomenclature has been adopted for classification of goods under customs and Central Excise and finally it is being adopted under GST.

The HSN is extensively used by governments, international organizations and the private sector for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, compilation of national accounts, and economic research and analysis. The HS is thus a universal economic language and code for goods, and an indispensable tool for international trade.

Since it provides standard and unique framework for identifying commodities, it is extensively utilized in data processing and framing other business rules under tax management IT System.

The Harmonized System is governed by “The International Conventions on the Harmonized Commodity Description and Coding System”. The official interpretation of the HS is given in the Explanatory Notes published by the WCO.

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