How To Find A Suitable HSN Code For Classification Of Goods Under GST

The Classification of goods under GST, which shall be HSN based has certain patterns and methods to learn and use for classifying different commodities to be supplied under CGST/IGST/UTGST/SGST Acts, 2017.

It may have 22 sections comprising 21 section of normal tariff and 22nd one for classification of services under Chapter 99 with the help of UNCPC for services. We may however, discuss classification of services separately.

As we have seen in the above discussion, if we want to classify our goods, we have to follow following steps:

a.         First of all we may see under which section the subject goods are falling into. Sections are arranged in a manner where natural living, non-living things comes first and then consecutively primary products, rudimentarily processed product, manufactured product and high level processed products comes in different sections and chapters respectively. We may therefore, specify easily that the classification schemes from lower to upper sections or chapters are based on amount of processing and the use of technology primarily; except some exceptions.

b.         Once section and Chapter of subject goods are selected, efforts to find out the specific group of commodity at 4 digit level and then specific sub-heading of 8 digit level should be identified.

c.         Thereafter, corresponding section notes and chapter notes are required to be spelled out so as to ensure that the particular commodity in the subject matter is not excluded from the chapter or sub-heading and are required to be classified under some other chapter/heading. For example Chapter 60 of Central Excise Tariff Act covers “Knitted or crocheted fabrics” whereas chapter Note 1 specify that - This Chapter does not cover:”

a.         (a) crochet lace of heading 5804;

b.         (b) Labels, badges or similar articles, knitted or crocheted, of heading 5807; or

(c)        knitted or crocheted fabrics, impregnated, coated, covered or laminated, of Chapter 59.

c.         However, knitted or crocheted pile fabrics, impregnated, coated, covered or laminated, remain classified in heading 6001.

The section notes and chapter notes have overriding effect.

a.         If meaning of word specified under sub-heading is not clear, refer to the trade practice. Even if trade understanding of a product can’t be established, find technical or dictionary meaning or the term used in the tariff.

b.         If goods are unfinished or incomplete but it has essential characteristics of the finished goods, the same will be classified under such finished goods sub-heading of tariff. This principle will be applicable mutatis mutandis with the goods in semi-knock down (SKD) or complete knock-down (CKD) conditions.

c.         If ambiguity persist then prefer the heading which has more specific meaning over general heading.

d.         In case goods are composite, mixture or combination consisting of different materials or made up of different components, which cannot be classified by reference of the principles specified above, then such goods shall be classified as if they consisted of the material or component which gives them their essential character.

e.         In some cases mixture of combination consisting of different components are classified based on its predominant factors or predominant works/uses or main function etc.

f.          Even it is not possible to classify in view of the principle derived above in paras (d) and (e) because both the components are equally important, it should be classified under the heading which occurs last in numerical order among those which equally merit consideration.

g.         If it is not possible at all to find a perfect match of heading for a particular commodity, it may be classified under the heading, which is the most akin.

h.         Packing materials, containers, camera cases, music instrument cases etc. are classifiable as if these are the part of the main commodities.

i.          There are various judgments of the counts of law and Tribunal, which have decided classification of goods under particular sub-beading such others of classification shall be applicable under GST Tariff law also.

Now one can easily select the section in which subject product falls. Once section is selected, then taxpayer may move towards the appropriate chapter and then under that chapter the appropriate group of commodities clubbed at 4 digit level classification. Once we reach up to 4 digit level of classification, identification of 8 digit code becomes easier.

However, it may happen sometimes that the commodity you want to classify in particular 8 digit heading may not qualify the attribute to the goods classifiable therein. For that it become important to see the Section Notes and Chapters’ Notes for more clarification. In normal course, descriptions are found easily at 8 digit level of classifications and subject goods are classifiable in the same category. However, in view of the common parlance, uses, essentiality, compositions etc. classification headings may be different. In such circumstances, taxpayer has to consult the Rules of classification and decide the appropriate tariff heading of his product.

GST tax rates and notifications for partial or complete exemption related rates, if any would be based on eight digit HSN classification. Since GST tariff has not yet formalized, however, based on the past experiences of customs and Central Excise Tariff framework, it is expected that there may be 8 columns of tariff, which will contain following information:

(a)        Tariff Item

(b)       Description of Goods,

(c)        Unit Quantity Code

(d)       Rate of tax

i.          CGST

ii.         UTGST

iii.        SGST

iv.        IGST

v.         CESS

Despite, there may be possibility that some notifications may come later on, which may prescribe either nil rate of tax or partial exemption rates against the standard rates prescribed under tariff of GST. In case taxpayers are entitled to avail the exemption, they will claim it while issuing Invoice and filing returns.

Software, records, tapes, CD, Pen drive or any software embedded or pre-loaded with any machine is to be classified with the same machine. Even in case of software brought separately, but as a set of the machine, would be classified with machine.
8.30 If a tangible software i.e. operating software or application software loaded on disk, floppy, CD-ROM etc. is supplied, it will be classifiable as software under heading 8523 of the Tariff.

Classification of Parts: Normally parts of the machines are classified under the sub-headings associated with the main machines, but there are some exceptions:

(a)        Parts of general use are to be classified in their respective specified heads and not with the heading of the machines where they are used.

(b)       Parts are to be classified as parts if separate headings are available for parts, as per section note 2 to Section XIV and section note 2 to section XVIII.

(c)        Various articles as specified in note to sections XVI and XVII are not to be classified as parts of any particular machine (for example - article of leather, belts, tools and appliances, instruments, clocks, watches etc.)

(d)       The direction that parts are to be classified along with the machine appears only in section XVI. However, it has been held by the court of law that application of this note should be made to the goods faffing under other section also.

(e)        Where the parts are not of general use, these should be classified under the heading of main machine.

(f)        Part of the part is the part of whole: like wheel is the part of cycle and valve is the part of the wheel. Hence valve will be treated as part of cycle.

Related Topics ....
What is HSN and NPCS under GST
HSN (Harmonized System of Nomenclature) Classification of Goods/Products/Commodities under GST Act.
GST Tariff Classification - General Rules Of Interpretation (GIR)
The General Explanatory Notes under GST Tariff
How To Find A Suitable HSN Code For Classification Of Goods Under GST
Principles Of Classification Goods – HSN under GST
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